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Under what circumstances can an employer pay a performance bonus?

by , 23 February 2015
There are several reasons for which a performance should and can be paid. Keep in mind that a performance bonus is normally paid for good performance, and should be based as a percentage of the employee's salary or wages. Also, according to the actual law, a performance bonus can also be paid as a lump sum to a department, and split up in equal amounts to each employee in that department.

This would apply in the situation where all employees in a particular department are collectively responsible for above-average performance.  The performance would be measured against laid down company standards, but the bonus would not be paid only for the occasional work done which exceeds company standards, but for consistent work exceeding company standards, as André Claassen and Jan du Toit explain for LabourGuide.co.za

In other words, that line management and the shop foremen and even supervisors have to become much more closely involved with the monitoring of performance on the shop floor and careful records must be kept.

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Moreover, as the previously mentioned source explains, when the results achieved by a department depend entirely on the collective effort of all employees in the department, the amount of the bonus could be calculated on the basis of a percentage of profits achieved over and above what was budgeted for, or as a percentage of the total profits generated by the department and so on. Whatever the case, the method of calculation must be fair and equitable.

Do not that when it comes about the production bonus, this not based on performance measured against company standards, but rather on production measured against targets.  Measurement is also based on quality of production.

Consequently, if the company has set a target for one particular employee or, for that matter, for a particular department to produce 100 widgets per hour, and the employee or department consistently produce 130 widgets per hour, then a production bonus would be justified.
You should also keep in mind that if the company rule is that a rejection rate of 5 percent is acceptable, but the department consistently achieves a rejection rate of only 1%, then a production bonus would be in order.

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