A Guide To: Individual Staff Bonus Schemes
An employee bonus scheme can help improve productivity and drive, reduce absenteeism and generally lead to a more positive, innovative workplace. And it can achieve this at a lower cost than simply offering everyone a pay-rise. There are differing approaches to performance-related pay and bonuses, and choosing the right one for your business increases the likelihood of it delivering your desired outcome.
There are three broad types of bonus scheme, those that are targeted at individuals, those targeted at teams and those open to the entire workforce. Over the next three blogs we will look at each in turn.
The individual staff bonus
There are many different routes to business success, with academics and business leaders debating the relative merits of each approach, but one thing that few disagree on is that to get the most out of your employees you must set them specific, measurable, attainable, realistic and timely targets.
However you define them, if you set objectives that lay out clearly what a team member needs to achieve each year, you are giving your staff a route map to enhancement, delivering a clearly defined picture of what that enhancement could involve, improving succession planning and, in the worst case scenario, helping reduce the risk of difficult conversations with members of the human resources team.
You have two main options when it comes to rewarding people that achieve their objectives. You can give them a pay rise, or you can offer an individual bonus. A mixture of the two would be a good way to ensure you retain that team member whilst encouraging performance improvement.
The three types of individual bonus
There are three types of individual staff bonus, which can be applied in different ways in different industries.
1. Productivity bonus
Productivity bonuses have traditionally been used in the manufacturing industry, where it is also known as piecework. It rewards individuals according to the number of items they produce over a defined period of time. With the increase in availability of reliable data, growing numbers of organisations have applied this approach in a modern context, with rewards based on the number of calls taken by a call centre worker during a shift or per hour, for example.
2. Quality bonus
Similar to a productivity bonus, a quality bonus can be assessed on the number of defects on products during a period of time. Again, the growth of accurate data that can be quickly analysed means that many industries are now offering a quality bonus to reflect a reduction in the number of customer complaints within a supermarket, for example.
3. Target bonus
Target bonuses are a well-used tactic within both internal and external sales environments as they can be exceptionally effective. They are paid if an individual hits a defined sales figure within a certain period, usually monthly, quarterly or annually. The figure can be a percentage increase on the previous period or a pre-defined target based on expectations, but either way it can have a positive impact on performance.
Improvements in data quality and the flexibility with which it can be applied has meant that all three types of individual bonus can be applied more easily to a wider variety of roles. In the past, certain bonus types could only be applied to particular jobs, specifically production and sales roles where the number of items produced or the value of deals closed could be easily quantified.
The enhancements in data quality mean that today, the different types of bonus can also blend more easily to give accurate recognition of back office or support staff as well. This not only improves performance but it also reduces the risk that teams will focus, for example, on quantity rather than quality.
No mean feat
Eighty years ago, the USSR focused its economies on five year plans which set targets for all aspects of production. The leadership rewarded factory managers if they achieved factory targets, irrespective of the approach they took.
Now this may well be an apocryphal story, but it is said that during the first five-year plan only one boot factory managed to meet its target and produce 50,000 boots. This factory was held up as the very embodiment of Soviet efficiency, lauded at party congresses. The manager was showered with praise and bonuses. Until someone pointed out that the reason the factory had met a target that nobody else could achieve was that rather than producing 25,000 pairs of boots, the manager had focused the factory’s efforts and efficiencies on producing 50,000 left boots, removing the need to constantly switch its machines over to produce matching pairs. Technically the factory had met the target that it had been set but in reality, what it had produced was next to useless.
With modern data analysis and effective management structures, it can be relatively easy to set up an individual staff bonus structure that helps bring out the best in your employees while avoiding the risk that too much emphasis will be placed on one particular aspect of a role at the expense of another equally important one. In other words, you can set targets that offer rewards that reflect both quantity and quality.