Compensating Employees

Give Employee Bonuses After Doing These Five Things

Employees love bonuses, but they value some things more than cash compensation. Here are five things to do before offering your employees a compensation bonus.

Bonuses can be an effective small business compensation tools.

Instead of giving an employee a direct raise, the employer can elect to offer a bonus if both the business and the employee meet performance expectations. It's a no-risk compensation strategy that recognizes the employee's contribution to the company.

But over time, bonuses have become standard operating procedure in some workplaces. Although they were designed to reward excellence, employees may now expect bonuses as part of their annual compensation. Even worse, some employers use bonuses as a way to solve HR problems rather than as a reward for the achievement of performance goals.

The simple truth is that financial bonuses need to be incorporated into a broader framework of rewards and performance evaluations. Employees aren't motivated purely by monetary incentives and if your reward system is limited to financial bonuses, it could have a detrimental effect on overall performance and employee morale.

With that in mind, here are five steps your business needs to take before you commit to compensating your workforce with a financial bonus.

• Work-Life Balance Programs. A large segment of the American workforce struggles to balance the demands of their careers with the demands of the personal lives. Employers who provide resources to help their workers achieve a work-life balance provide a benefit that is more valuable than a financial incentive.
• Well-Defined Job Descriptions. Clear job descriptions make happy employees. For performance-based bonuses, clear job descriptions are a prerequisite for determining which workers qualify for financial bonuses.
• Feedback on Employee Performance. Annual reviews are fine, but you'll need a more comprehensive employee feedback program to administrate performance-based bonuses. Quarterly or semi-annual reviews are opportunities to heap praise on excellent employees and encourage underperforming employees to work harder.
• Positive Reinforcement. Positive reinforcement mechanisms shouldn't be limited to year-end bonuses. The best employers use a variety of non-monetary techniques to recognize excellence year-round.
• Goal-Setting. Each employee should have an awareness of the company's goals as well as their personal goals. By helping your employees set individual goals, you become a cheerleader, a coach and a mentor in their success.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities

Contributors

Business Glossary