Do you give your employees bonuses in your small business? According to PayScale’s 2018 Compensation Top Practices Report, almost three-quarters of small businesses offer bonuses.
Companies can reward top performers with bonuses, also known as “variable pay”, without increasing fixed salaries.
PayScale reports that top-performing businesses are more likely than average businesses to offer bonuses (79% vs. 70%). According to a 2018 WorldatWork study, bonuses are increasing in popularity, particularly among small and medium-sized businesses.
Let’s take a look at some of the most popular employee bonus plans, and how you can make them work for your company.
Individuals or teams who achieve the goals established at the start of a performance cycle receive an annual incentive bonus.
PayScale reports that more than half of the companies use individual incentive bonuses, while 23% use group incentive bonuses. When group effort is needed to achieve a tangible result, team incentive programs work best. Individual efforts can be difficult to quantify.
Create a motivating annual incentive bonus program:
PayScale reports that 39% of companies use spot bonuses to reward good behavior. Spot bonuses can be given for exceptional customer service or going above and beyond.
Spot bonuses at large companies can amount to several thousand dollars. For small businesses, however, it is best to keep them modest — $25 and above will be acceptable.
Create a Motivating Spot Program:
Give out different levels of spot bonuses. For example, a $25 gift certificate for the most energetic person at the company booth. You could also give $500 for an even more extravagant action.
Establish a budget. Spot bonuses can quickly consume capital if there is no limit. You don’t have to spend all of your spot bonuses if you don’t see the right employees.
Make it count. Offer spot bonuses for exceptional behavior and not just for performing the job.
Surprise employees with surprise spot bonuses. Employees who know that two people receive one each week lose their motivation. Spot bonuses should be given irregularly to keep employees guessing.
Make it known. One of the rewards of a spot bonus is being recognized by your colleagues for your work. So make sure to award spot bonuses to all staff members. It can be publicized by sending an email to the entire company or making an announcement.
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PayScale reports that 39% of companies use referral bonuses. Referral bonuses are given to employees who refer job applicants who are hired and who complete a probationary period. It is believed that birds of feathers flock together, and if an employee refers someone, they are more likely to hire them.
To create a motivating referral bonus program:
Create a policy. Are you looking to offer referral bonuses for all jobs or just for specific positions? Are you looking to create a referral program or notify employees when you are hiring and ask them for referrals?
Decide how you will handle payouts. Some employers pay a portion of the referral fee when an employee is hired, while others pay the remainder after the employee has completed a probationary period that lasts three to six months.
Some companies give the whole bonus upon completion of the probationary phase. Regardless of the situation, ensure that your policy is written.
Offer higher referral bonuses to:
Signing or hiring bonuses (given upon hire) can be a great way to attract and motivate new employees. 34% of respondents in PayScale’s survey used them. Small businesses are less likely to use them, but signing bonuses could be a good idea if they:
A signing bonus is a great way to attract employees for small businesses with low starting salaries. Signing bonuses can backfire if the bonus is used to help job-hop.
It’s a good idea to stagger your signing bonus to prevent this. Half of the bonus might be paid at signing. Then, one-quarter of the bonus after six months.
The rest will be paid at the end. Many companies have “clawback” provisions that require employees to return a portion of their signing bonus if they quit before one year has passed.
Signing bonuses are not enough to attract and retain employees. To keep your employees motivated and loyal after the first year, you need to have a comprehensive employee development plan.
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Profit-sharing is much more popular with small and medium businesses than it is for larger ones. 22% of the 2018 Variable Pay Playbook small companies use it.
These plans allow employees to receive a portion of the company’s annual or quarterly profits. Employees are eligible for a percentage of the company’s annual or quarterly profits if you have a better year than usual.
You can tie profit-sharing plans to your company’s 401(k), with the profits being distributed as retirement plan contributions or on a cash basis.
To create a motivating profit-sharing plan:
Particularly if the profit-sharing plan is tied to 401 (k), there are specific regulatory requirements such as maintaining certain records, reporting requirements, and setting up trust funds.
For assistance, speak to your accountant or third-party financial advisor. For more information, please refer to the Department of Labor’s Guide for Profit Sharing Plans for Small Businesses.
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