As a new year begins, it's an ideal time to think about bonuses for 2020. Most bonus programs fall into two main categories: discretionary and non-discretionary.
Discretionary bonuses are bonuses given at an employer's discretion. Most employers rely on discretionary bonuses because they tend to be smaller and do not have more formal programs. Unlike discretionary bonuses, non-discretionary bonuses are generally tied to specific goals and objectives.
The most common type of non-discretionary bonus is the incentive bonus. Annual incentive bonuses allow organizations to tie payments to the achievement of specific performance goals that impact the profitability or an important achievement of the organization. Annual incentive bonuses can be an effective way to reward top performers, and since these payments are generally one-time occurrences that don't increase base salaries, the amounts awarded can often be larger and more meaningful to employees.
Setting meaningful incentive bonus goals takes time and consideration. Goals for some positions may be obvious—delivery dates, error rates, and sales goals are easy examples—but performance standards for other positions, such as those for administrative roles, may be harder to quantify and results may not be within an employee's control.
As you consider setting incentive bonuses at the start of a new year, here's some best advice:
- Quantify performance standards as much as possible. If there is data available to evaluate performance, use it.
- Work with your employees to identify performance standards that make sense and ensure the employee knows what is expected of them.
- Don't just rely on the profitability of the company as a whole. Very few employees have a direct line of sight between their day-to-day tasks and the overall achievements of the organization.
- Provide the tools and equipment necessary and make sure they receive regular and ongoing feedback.
Setting appropriate performance standards is a critical part of employee engagement and overall corporate success.
Visit Affinity HR Group, a Big “I" Hires partner, to learn more about HR policies and procedures.