12 Nov 4 Practical Tips for Bonus Planning
Mastering the art of bonus planning is no easy feat. It requires the thoughtful consideration of many complex variables. Although the approach that works best for one organization may not suit the next, there are a few best practices that can benefit employers of all sizes and industries:
1 Link it to Objectives
The primary purpose of bonuses is to incentivize specific business outcomes. Thus, bonuses should be based on clear objectives which are tied to your overarching organizational goals, along with the individual achievements which support them. It is therefore essential to clearly define expectations so employees know what they must achieve, and what their reward will be.
2 Set Clear Measurements for Success
In addition to the goals themselves, your organization should outline the parameters by which success will be measured. How is goal success actually defined? It could vary by department, team, or even job title. For instance, what constitutes success in sales may be vastly different from how an engineering team defines it. Be measurements are meaningful and relevant to each employee being rewarded.
3 Be Mindful of Internal & External Factors
An effective bonus plan must strike a critical balance among internal and external factors. While it needs to be equitable to accommodate the organization’s financial constraints, it must also be competitive enough to align with market factors. Determine which economic value is enough to drive performance without exceeding allotted funds.
4 Monitor & Update as Needed
Your bonus plan doesn’t have to be permanent, and in fact, it should be agile enough to adapt with the changing nature of your priorities and goals. You may also need to fine-tune the plan based on employee response: if performance soars with the introduction of one type of bonus but seems to lag behind with another, refine and adjust as needed. No matter how you alter your bonus plan, be sure to maintain transparency and fairness for all parties.
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