Employee bonuses can be an effective means of rewarding and appreciating good performance — provided that you structure them appropriately. The trick: Giving bonuses to groups of your employees instead of on an individual basis.
Here are some basic guidelines to help you do just that.
Too often, small-business owners decide to pay their employees some bonuses based simply on whether or not the company is doing “well enough.” This strategy can create problems, because staff members are unsure why they received extra money and what they must do to get it again next time. People also tend to grow resentful whenever the bonus fund shrinks or dries up.
Giving your individual employees specific performance targets in order to earn bonuses can also be problematic. This can leave people with the idea that they may work alone to meet productivity numbers, without regard for the company as a whole. What’s more, creating and monitoring these targets eats up management’s time and attention.
However, when you freely disclose details about the company’s financial performance, employees can begin to think more like owners than workers. They can also calculate what bonuses will be paid when the entire company hits certain targets.
Whether you divide your employees into teams according to how their work helps drive company performance or treat them all as a single unit, there are distinct advantages to rewarding employees as groups rather than as individuals.
First, paying bonuses to groups of employees encourages them to communicate and coordinate their work to improve overall company performance. Even if they’re assigned to different parts of the company, your employees will naturally seek common cause and try to maximize every aspect of their performance, according to Yoav Dembak, writing for Wired.
Second, a group bonus plan helps to strengthen employees’ feelings of loyalty and responsibility toward you and your company. This typically pays off in increased productivity, longer retention, fewer absences, and greater willingness to press hard during periods of heavy demand.
Acknowledge Varied Contributions
Within each group bonus, leave room for people with more responsibility to earn a larger share of the employee group’s total reward. You can make this allocation yourself, or leave it up to the group itself. Often, the whole team is best positioned to determine the fairest allocation of bonus money among individuals. In this model, the company’s ownership allocates a bonus to the employee group, and the group conducts a “closed door” meeting to decide how that bonus will be divided among individual employees. Allowing the team to set its own bonus allocations also increases every employee’s “buy in” to the bonus system as a whole.
Leave Room for Improvement
Whatever bonus plan you establish is likely to require adjustments from time to time. Make this clear to your employees. At first, you may get some pushback; people tend to feel uneasy about changes. But if your actions make the bonus plan fairer to all your employees and more reflective of both individual and group contributions to the company’s overall success, your employees will come around.
Allowing for ongoing flexibility will better prepare your employees to accept and even welcome changes to the group bonus plan without feeling undermined, shortchanged, or sandbagged. It may also get them to suggest better ways to align their incentives with the company’s overall performance.