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There are two different types of bonus schemes. Discover what they are so you can choose the one that's best for your business

by , 20 November 2014
As the year draws to a close, companies that offer bonuses are busy calculating these payments.

These companies pay bonuses for the following reasons:

• To motivate their employees;
• To make their company attractive to potential employees;
• To make sure skilled and valuable employees stay at their company; and
• To ensure their remuneration and benefits are competitive when compared to other employers.

If you don't currently offer bonuses, don't feel left out from all the talks around them.

You see, there are two different types of bonus schemes you need to know about. Read on to find out what they are so you can choose the one that's best for your business.

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Revealed: Two different types of bonus schemes you can choose from

#1: Individual bonus schemes
According to the Practical Guide to Human Resources Management, an individual bonus scheme sets out targets or objectives over 12 months.
You can agree to this bonus upfront and as part of your performance appraisal process.
You'll then have to review your employee's performance and progress against the set goals. And then link overall performance to the bonus he gets at the end of the 12-month performance cycle.
Now there are three types of individual bonuses you can link to performance. These are:
  • Productivity bonus – You base this on the number of items your employee produces over a certain period of time (For example, the number of calls a call centre agent takes in a specific period.) This determines the amount you'll pay.
  • Quality bonus – A quality bonus is similar to a productivity bonus. You assess your employee by evaluating the number of faults on products or services over a set period of time. For example, reducing the number of customer complaints in a store.
  • Targets – This option is popular in companies that deal with sales. You only pay this bonus if your employee hits sales figures within a set period, usually monthly, quarterly or annually. You can pre-set the bonus amount. For example, John gets a bonus of R5 000 if he achieves sales of between R100 000 and R150 000.

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#2: Company bonus schemes
You can set up a company bonus scheme to reward all employees if the overall performance of your company meets your business goals for a particular cycle, usually a financial year.
An example of a company bonus scheme is when you pay out a bonus after year-end financials show you made a large profit and you didn't expect it.
To thank your employees for their hard work, you can, for example, pay them each an extra 10% of their monthly salary that month.
Company bonus schemes also come in different forms.
You can consider the following company bonus scheme options:
  • A cash bonus;
  • Gift vouchers;
  • Share schemes; and
  • Flexible benefits.
To get a full breakdown of the pros and cons of these company bonus scheme options, check out the Practical Guide to Human Resources Management.
Now that you know about the two different types of bonus schemes, select one that suits your business. And keep reading FSP Business to discover the legal obligations you must stick to once you've decided which bonus scheme option is best for your company.

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