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Bonus Calculation

This document discusses different types of employee bonus systems that can be implemented, including performance-based bonuses tied to individual or company metrics, spot bonuses for exceptional contributions, sign-on bonuses to attract new hires, retention bonuses to keep critical employees, and project-based bonuses for completing projects on time and under budget. It also outlines the benefits of motivating employees and regulating payroll costs, but notes disadvantages like workers prioritizing bonus-tied tasks over others or resentment between roles. Employers must communicate bonus criteria clearly and ensure all employees earn at least minimum wage.

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aminfotech24
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155 views

Bonus Calculation

This document discusses different types of employee bonus systems that can be implemented, including performance-based bonuses tied to individual or company metrics, spot bonuses for exceptional contributions, sign-on bonuses to attract new hires, retention bonuses to keep critical employees, and project-based bonuses for completing projects on time and under budget. It also outlines the benefits of motivating employees and regulating payroll costs, but notes disadvantages like workers prioritizing bonus-tied tasks over others or resentment between roles. Employers must communicate bonus criteria clearly and ensure all employees earn at least minimum wage.

Uploaded by

aminfotech24
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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INTRODUCTION

Your employee bonus system can be structured in whichever way makes


sense for your business. However, once you set up an employee bonus system
you must follow it consistently and apply it equally to all of your workers,
provided they qualify.

 Types of Employee Bonuses


 Performance-based bonus:
As the name suggests, this bonus is tied with individual or company
performance. These bonuses can be tailor made for each departments

Some examples are enlisted below,

Sales Team: Bonuses are generally tied up with Sales Figures achieved
and can be in form of a percentage or a fixed amount paid upon each sale
with a condition to achieve a particular milestone.

Customer Support Team: CS Teams are generally paid bonuses on client


contract renewals. This again can be a percentage of renewals with a
milestone condition attached.

HR Teams: Their bonuses depend on successful new onboardings who


complete their probabationary periods and sometimes also linked with
keeping the rate of attrition low.

 Spot bonus: A spot bonus is used to show immediate recognition for


outstanding contributions of individuals or teams. It’s based on direct
observation and/or feedback from others for exceptional effort.
Basically, it’s a quick way to say “thank you” without having employees
wait until year-end bonuses are given out.
 Sign-on bonus: A sign-on bonus is used to attract applicants to join
your company. They are given upon hire and not based on performance.
In some cases, they’re used for high-demand skills and key talent
requirements
 Retention Bonus: These bonuses are used to retain critical
employees during a transition period, such as a merger or acquisition.
They are a promise to pay an employee a pre-determined amount upon
the occurrence of a specific event or date. Bonus amounts may vary
depending on the employee and their contribution to the achievement of
business objectives. The retention bonus is also usually a lump-sum
payment, with the employee generally receiving half of the bonus on
their paycheck beginning on a specific date, and the second half on
another date designated by the company.
 Referral bonus: These reward current employees for referring job
candidates who end up being hired. They serve as an incentive for
employees to help you find good job candidates.
 Project-based bonus: These are used to reward employees or teams
of employees for completing a special project on time, under budget and
within all performance criteria established at the beginning of the
project. T hey’re based on project metrics and may be used to
encourage project team members to meet deadlines. The project-based
bonus is also typically a lump sum paid to team members as a
designated amount determined at the end of the project.
 Non-cash rewards: Sometimes, a big cash reward may not be
possible for your company. No worries. You can still show your
appreciation without spending loads of money.
 Festive Bonus: Some companies offer an amount as a Diwali bonus
to all employees.

 Benefits of Employee Bonuses


Employee bonuses can be good for morale. They can also motivate employees
to work harder because they'll earn more if they achieve certain objectives. If
you tie employee pay to a bonus system, you can also regulate payroll
expenditures to correlate with increases in sales, so your payroll is higher
when your company earns enough to pay employees extra. If you structure
your payroll and bonus system this way, though, you must make sure that
each of your employees earns at least minimum wage even when business is
slow, and they don't earn much in bonuses.

 Disadvantages of Employee Bonuses


If you tie employee compensation to bonuses based on specific achievements,
workers may not be motivated to do work that doesn't yield the extra bonus
pay. If you provide bonuses for certain types of work and milestones, you may
create resentment among workers who do types of tasks that don't qualify
them to receive bonuses. Also, tying employee rewards strictly to monetary
compensation can be impersonal and counterproductive if you don't also
make your staff's work-life meaningful and satisfying through gestures such
as sincere praise and opportunities for advancement.

 Warnings
o Minimize legal risks by warning employees with poor performance early
on that they may not be considered for a bonus if poor performance
continues. This reduces the risk of favoritism or bias if the employee is
not given a bonus later.

o Setting a high bar for performance bonuses that no one can reach I
demoralizing.

 Tips

o If employee bonuses are based on a stellar performance, give guidance


on how employees can improve their performance to earn those
bonuses.

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