The following "10 tips for creating an effective bonus scheme" will help you skeleton a scheme that not only motivates but also rewards both parties.
All businesses involve sales of some kind or another, it may be service or product-driven but it’s still sales. People are motivated by reward. There is nothing better than driving your people toward a goal. A goal that not only rewards them but also rewards the business.
With this in mind, we’ve collated our top tips for creating an effective bonus scheme within your organisation.
Keep it simple.
The scheme must be simple. It needs to be easy for both your payroll and your people to work out if you over complicate it then it will demotivate not motivate.
Keep it real.
The targets have to be realistic, if you issue targets that your people look at and think “no chance” then it becomes a waste of your time and even worse sends the wrong message out into the business.
Make the numbers work.
The bonus needs to mean something but not bankrupt you, usually, around 10% of salary is a good number. You then can work it back, so if I pay them an extra 10% of salary for hitting targets what is the cost to the business? You must cover the cost and make an extra profit so that it balances out for both the people and the business.
Reach for the stars.
Always add value for overachieving, human nature is a very predictable thing, if they achieve the target then they will stop as there is no benefit to them for adding more revenue. Implement a range so they can earn even more for exceeding target and the business will earn more. Make sure the formula works for both but also cap it at say 110% of target. You want them to stop somewhere or next year is going to be a very difficult year to add more growth.
The science bit.
The carrot and stick! Don’t make the stick too long and the carrot too small, start them earning bonus at 95% of target, it makes the carrot visible and well in reach and motivates them to push on.
Forewarned is forearmed.
Set up weekly, monthly and quarterly meetings to deliver the “where we are now and where we want to be” message. Bonus schemes only work if everyone knows where the business is at against its goals. More meetings I hear you cry! The meetings must be structured and not eat into the valuable time. There is a formula for these and if you are interested, I can show you how just get in touch.
What time period should you target?
The most effective bonus schemes work over a quarter rather than monthly, it gives the people time to push and adjust, gives a chance if they are off sick or away from the business on training courses, you don’t want your people to refuse training because they are concerned about missing their bonus. Also, include in the bonus an annual figure, they may miss the target in Q1 and Q2 but they make it up over the year and at the end of Q4, they have achieved overall target. At this point, the business has earnt its extra profit so pay out the bonus! Mitigates them from giving up as they still have the overall target to aim for and get paid.
The big stick bit.
Qualification, they must qualify for the bonus. KPI’s are the best way to measure qualification. KPI”s should be what the business expects from its people as a minimum requirement to do the job they are tasked with effectively, for example, if you have field sales teams it could be the number of existing customers visited, new prospects met with and new customers onboarded in a given period, meet all the KPI’s and you’re on for a bonus. Click here to read more about how Business Bullet explains KPIs.
This is a small extra incentive for a “focus point” this should change on a regular basis, for example, this quarter the kicker could be for a new product launched, another quarter it could be for the number of new prospects converted, you get the idea.
Laugh till it hurts
It has got to be fun! Making it fun will yield results, everyone performs better when they love what they do, the people they work with and the results they get. It’s not all about the people it’s about the business too and having fun in business is one of the key drivers of success.
Do you want more advice and guidance on how to implement a bonus scheme in your business? Or are you looking for a business adviser to help your business grow? Mustard has an enviable track record of working with successful businesses to take them to the next level, providing innovative, practical solutions on how to implement strategies. Get in touch today for a free consultation.