Bonuses - good idea or not?

One thought is that an employee performing well is just doing what the company wants them to do - so other than salary/wages why should they get an additional bonus? The other school of thought is that an employee who goes above and beyond the performance that has been set, should be rewarded for their hard work and extra effort.

From a businesses perspective, bonuses should relate as directly as possible to the goals or targets that support directly or indirectly to the strategic plan of the company.

Is it preferable to have solely base pay or include a bonus system? With base pay there are two things most businesses want to achieve, one is internal relativity and the second is that the company wants to be competitive enough within the market to attract and retain staff. The key word is competitive and not lead the market. A bonus on the other hand for short term success can be paid from short term profit to which the performance contributed, making it possible. In other words bonuses can be ramped up or down to reflect revenue gains and dips.

If businesses prescribe to a base rate remuneration plus a bonus element, base pay increases should be limited because of the perceived expectation to increase the salary/wage next year and the year after etc. High pay increases cannot be sustained when revenues fall.

For SME's who may not have the luxury of offering cash rich bonuses, there are plenty of low cost ways to recognize good performance that can be used far more effectively than money. Especially when money is tight companies can really adopt their own form of recognition and reward. Talk to an HR specialist for options for your business.

Quite often bonus schemes don't work because they are difficult to administer, poorly understood by employees or create difficulty in role changes and responsibility during the bonus period.

For a bonus scheme to work it must be based on factors that are within the control of their employees in their daily jobs. It should be designed so that the employee knows what is expected and how they can achieve the expectations or goals. Simple is best and it must be clearly measurable with no grey areas for dispute. This takes some work but it can be done.

The debate for or against bonuses has been discussed in HR circles for years. Is it right for your business? That will depend on your strategic plan and the platform that will help to achieve that plan.

Call Paddy Battersby now on 09 838 6338 or email paddy@battersbyhr.com to discuss bonus schemes or any general HR concerns with your business.