Calculating Bonuses for your Staff

One way to incentivise your staff is to pay them a bonus based on their and the team’s performance. This encourages them to work harder and be more productive helping you to make more money along the way. And why not reward your staff by sharing the profits with them? This will help to foster greater loyalty from your team.

But in calculating their bonuses you have to make sure that:

1. You don’t make it too easy to achieve their targets
2. They have to use skill to meet their targets.

Setting your staff ‘hurdles,’ that they have to get over, is a good way to encourage staff to reach their targets. They have to get over a number of hurdles before they are entitled to their bonus. Engineer the incentive so that they have to cross every hurdle before they are entitled to the bonus. If they miss one hurdle then it’s no bonus. The challenge is to be able to incentivise staff to worker smarter yet not let them take shortcuts which will harm the business’s reputation solely to meet a target.

The following are examples of hurdles that you can create:

Hurdle 1: Minimum Sales Targets

First they have to achieve a minimum sales level each week, month, quarter etc.

Hurdle 2: Minimum Gross Profit Percentage Target

Your team has to sell your products at a minimum mark-up level in order to cross this hurdle. This will stop your team from excessive or rash discounting in order to get the sales volume up. It also helps the team to concentrate on selling higher margin products rather than trying to get sales of low margin products. While every business will probably have low margin products they sell, they will also have high margin products as well and so this hurdle makes the team focus on getting more of the high margin products sold.

Hurdle 3: Expenses to be under a set amount

This hurdle ensures that your team learns how to be careful when spending your money on items such as administrative costs, advertising and marketing costs, travel expenses, motor expenses etc. You should make responsible team members aware that they are in charge of a certain line of your expenditure and that they only have a certain amount to spend each month/year. Set them a budget at the start of the year and then you must report back to them during the year with progress as to whether they are overspending or within their budget. This hurdle is very important as it makes the team realise that in order to achieve their bonus they need to be careful with your money. It will bring out carefulness and frugality like you’ve never seen before. It also means for example, that the marketing department can’t just rack up a great big advertising blast in order to get their sales over their target because, if they do this, then they have failed to cross this particular ‘hurdle’ and so will miss out on their bonus.

The above are three types of financial hurdles you can set, but you may want to set some non-financial hurdles as well. Here are some examples:

Workplace Accidents

Perhaps you operate a factory. You could set a hurdle to encourage the safety of your staff which may be something like; there is to be no workplace accidents each month.

Faulty Products

When staff are under pressure to meet a target they may likely look at ways of taking shortcuts to do things faster. This is when mistakes start to happen and often you don’t find out about it until your products are with your customers and they don’t work as they should. So set a hurdle which ensures the staff maintain a very high level of quality when producing your products.

Customer Complaints

Once again, staff need to realise that happy customers are the life-blood of your business (and also the key to them retaining their jobs). So maybe you could set a hurdle which ensures your staff are providing the very best service possible to your customers. How you set this hurdle will be determined by what your business is.

These are just a few examples of ‘hurdles’ you can set. You will know in your business where improvements can be made. As you set the pace, your staff will lift their game and become honed athletes speeding over their hurdles one after another so you will be happy to reward them accordingly.

So how do you decide what sort of a bonus to pay your staff? Probably the most common type of bonus is to pay them extra through their pay packets but this may not necessarily be the best option. Some people are not motivated by extra money but value other things instead. Maybe they would value a bit more paid time off work to spend more time with their families or other interests they may have. Or maybe they would like their bonus paid to their favourite charity. The best way is to ask them what they value the most and create a bonus around that.

Do you pay all of your staff the same amount of bonus? This depends on what your business is. Your sales staff may be the key drivers in reaching targets and so they may be paid more but don’t forget that even your key staff are dependent on all of your staff performing a team effort right across the board.

In all of this you are looking at ways to improve your business performance and to also encourage your staff to play a team effort, lift their own morale and self-esteem. Happy employees work better and create a far better work place environment for everybody to work in. And a final note to all of those of you who are the bosses - your attitude is absolutely critical to setting the tone in your business. If you’re negative, this will flow right through your organisation right down to the janitor. So it’s up to you - keep positive, keep smiling, keep enthusiastic even when your desk is going up in flames!!

Monthly Business Growth Tips Disclaimer

Important: We cannot be held liable should Clients act solely on the basis of the material contained in the Monthly Business Growth Tips. Items herein are general comments only and do not constitute nor convey advice per se. The Monthly Business Growth Tips are issued as helpful guides to our clients. We cannot guarantee that your business will grow if you follow the guide of the Monthly Business Growth Tips as many other factors that can lead to decline are not necessarily influenced by making one change to the way your business operates.