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Employee incentives: Dos and don'ts for employee performance bonuses

by , 11 June 2013
According to the Practical Guide to Human Resources Management, if you want to retain your employees and have happy and committed workers, you need to recognise their contribution in a significant way, over and above giving them their salary. One way to do this is by incentivising them with performance bonuses. If you go with this route, here are the dos and don'ts to help you incentivise your employees to make them star performers.

As an employer, you need to incentivise your employees to perform beyond what's expected so they don't only deliver 'what they're paid for'. This encourages them to stretch their capabilities and aids your company's bottom line.

You can do this by giving them performance bonuses.

While managing employee performance is always complicated, make sure you don't complicate it even further when you incentivise your employees with performance bonuses.

To ensure employee performance bonuses achieve the desired results including more commitment, follow these dos and don'ts.

Essential dos and don'ts for performance bonuses

Below, the Practical Guide to Human Resources Management lists the dos and don'ts when it comes to employee bonuses.

  • Don't make the whole bonus dependent on achieving the company's financial results. This might be relevant to management, but the average employee has very little effect on the achievement of profit and won't understand why his hard work isn't being rewarded.
  • Do: It's a good idea to link the bonus to profit share, but accrue a portion of the bonus so you still reward employees achieving non-financial targets.
  • Don't commit to a reward you can't afford, or move the goal posts during the period under review. Companies have been destroyed by promising profit shares and using profit to invest elsewhere.
  • Do: Decide the proportion of profit available for distribution upfront and don't use it for anything else.
  • Don't make the bonus purely discretionary. Many companies make incentive bonuses dependent on achieving budget. Firstly, budget and profit aren't the same and many employees are aware of this. Secondly, while the senior management team can track its performance against budget and profit targets, lower level employees can't. They'll become very demotivated by an incentive that doesn't pay anything, even though they've achieved their personal targets.
  • Do: Make it clear to the employees how you'll calculate the bonus and ensure the measurement criteria are fair and measurable. Your employee must be able to calculate his own bonus. It's a good idea to accrue part of the bonus so a portion is paid out, even if budget isn't achieved.

According to FSP Business, studies show incentive programmes can improve employee performance anywhere from 25% to 45%, as well as decrease turnover, increase customer satisfaction and enhance the public's awareness of your brand.

Just remember these dos and don'ts when it comes to performance bonuses linked to your company's incentive programme to ensure your incentive programme is effective.

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