Bonus programs are often cloaked in mystique. They generally are not predicated on anything tangible or measurable and tend to be driven by subjective decisions about whether or not a bonus should be given, how much it should be and who should receive it. The absence of a policy delineating what employees must do in order to earn a bonus creates a sense of uncertainty. Establish a program that clarifies employee goals and then links the bonus to those goals to eliminate ambiguities.
As stated in the above paragraph, develop a standard “scorecard” for the bonus. Place it where all parties can see the progress on a weekly / monthly basis. It can be a percentage of tangible CI (Continuous Improvement).
Before implementing an incentive program, you should evaluate your practice and set forth parameters that will guide any decisions involved when determining if a bonus is warranted. One of the key factors relating to the success of a program is making sure your employees feel that the bonus is fair. They must understand that they will be rewarded based on certain measurable criteria. Most important, meet with your staff and let them know that it is a bonus and not an entitlement. It must be earned.
Maybe everybody is equal in the “eyes of the almighty,” but this demoralizes a team in which all players get the same bonus amount despite their individual value added. A bonus system requires a standard set of goals and an individual value added portion.
It is paramount that the bonus has a common set of criteria to ensure that the entire team is addressing the same target.
Furthermore, never cap a bonus. If the goal(s) of the bonus program is to add tangible value to the organization, why limit the organization or the team? If the team can hit it out of the ballpark, why stop them. Assuming the bonus program ensures tangible value is added to the company let them keep swinging away.
Annual bonuses take too long. The reason most companies do annual bonuses is based upon retention of key executives. For most mid-size organizations this is not a concern. Establish short “win-win” scenarios. Reward them often – quarterly.