I’m thinking about paying a bonus; what safeguards should I include in the scheme?

I want to introduce a cross-company bonus based on performance of the company to try and motivate all my staff to think about the impact of their roles on their colleagues and on performance of the overall company, but I don’t want to reward staff that are not contributing.

 

What you describe is a great way to link individual performance to overall business performance and can really reinforce an effective appraisal scheme. In fact, linking a bonus to your appraisal scheme provides an objective way to identify who qualifies for the bonus and who does not.

An appraisal scheme should set and review employee objectives, showing how they align to business objectives. On reviewing achievement of objectives an overall score can be applied. Employees achieving above a certain score can be eligible for the bonus. Employees that are not achieving their objectives will therefore not qualify.

Including behaviours or ‘competencies’ in your objectives makes your performance management not just about tasks but about the way tasks are achieved, so that if someone does all the right things, but for other reasons their targets are not achieved, they can still be rewarded for their efforts.

It is vital to set out some robust scheme rules, so that all employees are clear about the criteria for receiving the bonus, how it will be calculated, how it may be pro-rated for part-timers or employees that commence mid-year, and when it will be paid.

As it is related to work, it is most likely to be subject to tax and national insurance deductions, so to manage expectations, make it clear that these deductions will be made.

You may want to consider a minimum amount of service before an employee is eligible for the bonus – during a probationary period an employee may not be fully productive and contributing to organisation performance.

You may also want rules to state that employees with live formal warnings and employees that have given notice to leave the organisation will not be eligible to receive a bonus – setting clear timescales as to when these factors apply – whether it be the company performance period, or when the bonus is actually paid, or both.

I would not recommend including the bonus in your contract of employment as it would commit you to having to pay it on a regular basis. You should, however, include in your contracts a clause to make it clear that payment of a bonus on one occasion is no guarantee of a payment in subsequent years. In your bonus scheme rules it would also be wise to state that the scheme is dependent on the performance of the organisation, is discretionary and may be withdrawn at any time.

A bonus can be incredibly motivating, but employees will often make assumptions and spend a perceived sum in their minds before it is even earned. Therefore, clear rules will help manage those expectations and protect you as an employer.

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