In the current economic climate, employee retention has jumped to the top of the priority list for many small businesses. It is more cost-effective to retain employees and keep turnover low in the long run. One of the easiest ways to retain and motivate your employees is building a solid employee bonus program. An employee bonus program includes any type of compensation that you give your employees over their regular hourly rate or salary.
The Benefits of an Employee Bonus Program
- Focus your employees on your business goals
- Reward top employees to increase retention likelihood
- Increase employee team commitment
- Boost employee morale and productivity
Discretionary vs. Nondiscretionary Bonuses
Employee bonuses come in many forms, but they all boil down to two main categories: discretionary and nondiscretionary.
- Discretionary bonuses are bonuses that your employees don’t expect. They’re given randomly and at the employer’s discretion. They’re not required, and the amount is up to you.
- Nondiscretionary bonuses are promised to the employees, as they’re known and expected upfront. Usually, you’ll find these bonuses specified in an offer letter or contract.
Which category a bonus falls into depends on how you intend to reward your employees and the type of bonus you choose to give out.
Different Bonus Options
- A performance-based bonus is based on measurable performance goals, such as attendance or productivity, over a set time frame. The majority of employees prefer their bonuses to be based on their individual performance to give them more control over their income.
- An annual bonus is the most common. These are given once a year and are based on the employee’s annual base pay.
- A signing bonus, sometimes called a sign-on bonus, is used to help recruit top talent and can be the deciding factor for many employees on which position to accept.
- A retention bonus is given when an employee reaches a certain period of employment. They are used to retain top employees who may be vulnerable to poaching by another company.
- A referral bonus is given when a current employee helps recruit new employees who stay with the company for a predetermined amount of time.
- Spot bonus is given intermittently on an as-needed basis to reward significant goal achievement or exceptionally performing employees. They often come in forms other than cash, such as gift cards or merchandise.
- A holiday bonus is exactly what it sounds like, a bonus at the end of the year before the holiday season.
- A profit-sharing bonus is when a company gives its employees a percentage of the profits for the year based on their role in the company.
How to Build an Employee Bonus Program
Whether you want to increase revenue or cross a specific milestone, follow these steps to create an employee bonus program.
- Understand what drives employees
- Be straightforward about eligibility
- Effectively communicate requirements and expectations
- Create clear documents regarding the program, answering the following questions
- Who’s eligible?
- When do employees become eligible?
- How much is the bonus?
- When do people receive the bonus?
- Does the bonus evolve based on tenure?
No matter how you’re showing appreciation to your employees, whether it’s with cash or a holiday party, it’s sure to go a long way in showing them their hard work and dedication to their role hasn’t gone unnoticed. Even the smallest act can make a big difference in the morale and sentiment of your employees.