Bonus scheme is one of the most important reward schemes in the companies’ structure. The recent studies show that it is main tool to motivate the employees in achieving goals and enhancing their contribution to the company. Bonus scheme that is correctly developed improves employee’s engagement and efficiency in daily work. Bonuses are designed to reward work effects of groups and individuals and it should be always based to the accurate and objective assessments .
Benefits of bonus schemes
Effectively design bonus scheme that is based on the realistic assumptions brings benefits to both employee and employer. Firstly, it improves position of the company on the market and increases its competitiveness, as pays always depend on companies’ performance. Furthermore, company which applies such scheme is able to optimize costs of performance and increases financial security variable salaries. The benefit is also on the employees’ side, as they have an opportunity to have an impact on the amount of the salaries. On the related note, such asset motivates and encourages employees .
Criteria that need to be met when company is implementing bonus scheme
- Employees are fully aware of exact goal and norms that need to be met in particular time,
- Bonus is in directly and clearly linked to the one’s effort and accomplishments
- Reward should be always adjusted to the estimated targets
- Individuals and teams should have possibility to have impact on one’s performance, development or improving competences
- People should have knowledge of possible incentives, so they can set their individual goals and plan their performance accordingly
- Company should have clear and fair plan on measuring performance, checking on the development of individual
Bonus schemes within a team
Bonus schemes may be applied for individuals but also for teams and there should be choice how particular recognition will be paid out. We can list three methods that can be used as examples of such pay out:
- All team members may receive equal award
- Employer set awards for individuals. In this case one’s contribution to team performance is reviewed.
- Award is estimated by ratio of each employee base salary to the base salary of the team as whole
Mentioned above methods has both weaknesses and strengths. In case of first point, there is always a risk of free rider, when one will receive incentives, although there will be no contribution to award from one side. That may result in conflicts. However, equal bonus may improve cooperation within a team; encourage individuals to put more effort accomplishing team/company targets .
- Andersson O., Holm H.J, Tyranand J.R., Wengström E., 2013
- Armstrong M., 2002
- Kumar H.L., Kumar G., 2010
- Thompson M.,1995
- Andersson O., Holm H.J, Tyranand J.R., Wengström E. (2013),Risking Other People’s Money: Experimental Evidence on Bonus Schemes, Competition, and Altruism Research Institute of Industrial Economics, Stockholm, Sweden
- Armstrong M. (2002), Employee Reward, Chartered Instituteof Personnel and Development, London
- Kumar H.L., Kumar G.(2010), Practical Guide to Payment of Bonus: Act & Rules: Second Edition, Universal Law Publishing CO. PVT. LTD.,New Delhi
- Thompson M. (1995),Team Working and Pay, The Institute for Employment, Brighton, UK
Author: Anna Stach