New Year Bonuses
Bonuses - Incentive or Just a Routine Procedure
A real and transparent link between employee performance
and bonus payout can make all the difference when using performance pay as an incentive.
Scorecards or performance agreements are tools to spell out
each individual's part in making the company strategy manifest. Typically, they contain
clear goals, timeframes and an evaluation process. Scorecard outcomes are tied to
performance pay, so that each individual knows exactly what their input is to merit the
bonus they are being paid. The greater the transparency, the greater the effect of the
Scorecards usually reflect only short-term goals at the
expense of long- and medium-term objectives. Long-term goals are usually tied to the share
price (if applicable), EVA (economic value added, long-term profit projections and contain
clear triggers for specific payouts. Medium-term goals also need to be very clear and
measurable and have triggers to assess performance. Performance payouts operate most
effectively when goals with different time-frames are fully reflected.
For a performance bonus to have the desired effect of
lighting the fire to work towards certain goals, it needs to be of a size that will make a
difference to the individual. We sometimes see companies promising a high bonus in
percentage terms (i.e. 30%, only to cap the dollar amount, effectively arriving at a much
smaller percentage). This is not a way to encourage above-average performance!
An outcomes focused culture relies on effective performance management. The elements of an effective performance management process are timely, accurate performance data, regular reviews (monthly) of performance and trends, improvement process to overcome barriers and capitalise on opportunities and an active feedback loop to staff. An annual review of performance does not meet many of the above criteria.
In summary, the keys to making bonuses work towards boosting performance and morale (instead of just being a "thank you and have a happy holiday") are obtaining alignment between individuals and corporate goals in a transparent way that makes it well worth the effort.
If you are interested in more information please give us a call on +61 412 026 909 and ask to speak to one of our consultants.
PARTNERS in PROGRESS