MT Expert's Ten Top Tips: Designing bonus schemes

Bonuses may have a bad name at the moment, but they can be a vital motivator - if you get them right.

Last Updated: 31 Aug 2010

Bonuses have had a bad press lately; they've become synonymous in some people's minds with nose-in-the-trough fat-cat bankers, and politicians around Europe are queuing up to try and curb them. But these negatove headlines shouldn't obscure the fact that these badly-designed City bonus schemes are the exception rather than the rule. Used properly, bonus schemes are a vital way of motivating your staff and encouraging them to align their efforts with the company's objectives. MT asked Bill Schuh, VP EMEA of Callidus Software, for his top ten tips on how businesses should manage their incentive programmes.

1. Make it objective
Ensure your plan is measuring strict, objective criteria that are well-documented, fair and fit in with company goals. This makes it transparent and justifiable to all stakeholders in an organisation.

2. Pay up as quickly as possible
Managers often make the mistake of outlining too long-term an employee bonus plan and consequently wait too long to pay their teams. It's better to set short-term goals and compensate your team regularly.

3. Cash is king
Cruises, holidays and other prizes are great, but cash incentives have been proven to be far more motivating. So think of contests and promotions as fun ways to add to a cash compensation plan, but don't make them a substitute.

4. Keep goals simple
Equally important is that targets or objectives need to be simple for both executives and employees to understand, and easy to measure. If you can't properly measure performance, it's crazy to put rewards in place, because that investment won't work toward your overall company goals - and neither will your staff.

5. Think of an incentive programme as ongoing
Long-term incentive programmes produce twice the results of short-term ones. If you’re serious about permanently improving KPIs, an incentive programme must be continuous, not stop/start.

6. Make it company-wide
Bonuses have tended to be focused on the sales department. Motivate the whole company by expanding incentive programmes so that they cover the whole organisation. This gets all staff on board with corporate objectives and makes everyone involved in hitting targets.

7. Do it early
Employees are not going to focus on their goals and objectives until they know what they are incentivised on. So ensure people know their goals early, even if they're still rough and will need to be adjusted. This means sales people will have something solid to shoot for and they'll start closing deals earlier. For other employees, by putting intermediate targets in place you can rest assured that everyone is moving in the same direction, for the good of the company.

8. Shout about it
Using employee comments about your incentive programme in the careers section of your website and in recruitment brochures can be an innovative way to attract talent. When people change jobs one of the main factors they consider is how an employer treats their staff. A company that rewards staff looks very attractive to new talent, particularly in today’s market.

9. Use a bit of theatre to get everyone on board
The biggest use of bonuses is still in sales. There's an age-old, yearly, battle between executives and sales teams when it's time to review sales targets and results, but it can be prevented with one theatrical but powerful step. When goals are missed, management says the sales force doesn't 'get it' or isn't motivated, and the sales team says the products aren't any good. To keep people from passing the buck, get input and agreement from both sides, circulate the compensation plan, get everyone involved to personally sign it and the potential for excuses is radically reduced.

10. Measure the ROI
If you’re not measuring the return on investment (ROI) of your incentive programme, how can it be justified? An incentive programme is the same as any other function - it must be continuously evaluated and tested with control groups or benchmarked with peers.

Bill Schuh is VP EMEA of Callidus Software. As always, if you've anything more to add, please do so below...

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