Bringing Back the Bonus
It comes as no surprise that one of the reactions to our past 18 months of economic turmoil has been an increased focus by organizations on getting the most value possible out of every dollar they spend. This practice also extends to compensation.
As you would find historically during upturns, the last five years before the meltdown were mostly focused on salary scaling, merit increases and cost of living adjustments. What that means is that employers had become accustomed to giving out across the board, guaranteed compensation increases. Today, the strategy has changed as it always does in a down cycle with many companies using bonuses and incentives for their compensation increases. Since funds to increase compensation are scarce, putting that money into bonuses is a smart thing to do. First, the money only gets paid out if the bonus parameters are achieved, which probably means if the economy has another little bump that money is saved. Second, putting the budget into bonuses is a way of ensuring that the small increases you can afford disproportionately flow to your top performers, the key employees every company wants to keep happy and productive.
While bonusing makes a great deal of sense in today’s market, it isn’t completely cut and dry. If you’re using, or considering using bonuses as compensation increases this year consider the following tips to make sure your program is as productive as possible.
Make sure the bonus fits your company
Many organizations today are giving across the board bonuses instead of salary increases. That way if the company over performs everyone will make a little bit more. The truth is, unless you have a small company where everyone knows everyone, these overall bonuses don’t tend to impact behavior. When a bonus is too general, people feel like they can’t control the outcome and just act normally. The whole point of a bonus is to increase productivity and urgency, so tailor yours to the way your company actually works.
Communicate constantly
Bonuses are a lot like contests. They generate a lot of buzz upfront, but quickly fall off of the radar if unpublicized. When you roll out your bonus, make sure it is well explained and people know exactly how they can earn the extra money. But don’t stop talking about it there. Throughout the bonus period (which may be all year) keep people updated on how it’s going, how many are on pace and specific actions that can pull the whole company’s performance upwards.
Put it on paper
It sounds simple, but make sure your bonus program is in writing and has gone through legal scrutiny where necessary. Depending on your state, it may or may not be considered a legal compensation plan so you’ll want to treat it accordingly. Remember that a misunderstood or unclear bonus plan will lower morale not raise it. So, it’s well worth it to put it all down explicitly.
No matter how you choose to structure your program, using bonuses to squeeze ROI out of your compensation budget is a trend that we will continue to see for awhile. When done well, bonuses can dramatically increase an organization’s effectiveness. Be sure to thoroughly think through your program before it’s rolled out, and you can bet you’ll be thrilled with the results.
