Performance bonus

Performance bonuses are intended to be motivational tools that encourage employees to keep goals in mind and take action in their everyday work to help the company achieve those goals.

Compensation for work performed above and beyond normal or expected duties. Performance bonuses are often used as incentives for increased productivity of an individual or team in a corporate environment. A predetermined performance bonus for meeting a specific goal or target is common in the sales industry and for C-suite executives at large companies. Occasionally, performance bonuses are awarded in recognition of exceptional work even when the employer has no contractual obligation to do pay a bonus.

A good bonus plan can help your business attract, retain and motivate employees. Bonuses are especially attractive for start-up businesses, because they are often only paid out if the business makes money.

Here are a few things to consider as you design effective performance bonuses.

Bonuses should be kept separate from pay and cost-of-living increases and tied directly to specific, measurable objectives that are linked to the company goals and to the employee’s contribution to these goals or the bottom line.

Serious problems with morale can arise if bonuses or other reward and recognition plans are not well thought out or are based on subjective criteria.

For example, let’s say you award a bonus to a staff member based on a supervisor’s subjective judgment of performance. That employee continues the same performance into the next year, but the supervisor wants to single someone else out with a bonus instead of last year’s star employee. The first employee may look on this as a disincentive.

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