Creating successful bonus structures – five things to think about

Whether you think in these terms or not, the way a company sets up, manages and then settles its bonus plans will have a direct impact on the behaviour of people within the organisation. Here are five thinking points in respect of creating successful bonus plans for 2019 and beyond:

1. Be clear about the company’s real values
This is the single most important element in achieving a successful bonus structure. Many companies in the “open communication” era will have a set of values describing how they want people to behave – these may be found on the walls of the office or in a handy booklet. However, underneath this will be the “real” values of the company – the values which may not make a good soundbite but which accurately describe how your enterprise functions most successfully. Taking the time to unlock this is crucial in all aspects of remuneration design – including bonuses.

2. Make sure it is affordable
Some might consider this obvious but it is crucial to make sure that payments are tied to affordability. There are few things more demoralising than bonus numbers having to be scaled back due to miscalculations or when a line manager has to revise down bonus levels due to wider company bonus issues. It is possible to put bonus plans in place where this issue is mitigated or even eradicated.

3. Back up bonus plans with hard decisions
If you have created a bonus structure which rewards people for ‘how’ they have done things as well as for ‘what’ they have done, then a potential management decision may arise when a “star performer” delivers results in a way that goes against the expressed values of the company. Will the leadership team be willing to risk upsetting the star performer by not paying out some or all of the bonus? If they are not then the company should reconsider the structure of the bonus plan, as a bonus plan which rewards “bad” behaviour will send a clear message that the values of the business can be ignored.

4. Decide how widely the bonus plan should apply
It is tempting, especially when money is perceived to be tight, to decide to reward only those who are “high performers”. However, research evidence on this point indicates that bonus plans created in this way may be more harmful than plans which provide bonuses across a wider range of performers. Consider ways in which your bonus plan could have wider applicability.

5. Communicate regularly
The most successful bonus plans should form part of the management tool kit of the business and not just be something that is pulled out at the end of the year. There are a number of things that can be done to embed the bonus plan within the review process in order to get the most out of it.

For further information or to discuss any questions you may have, contact Stuart James.

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