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5 Ways to Create a Bonus Structure for Your Small Business

Author: Matthew Harris

Bonus plans are a leading way to motivate employees. A good bonus plan can make or break a company's revenue, its profits and its success. For a bonus plan to work, it needs to be based on a proper bonus structure that is graduated, equitable, timely, simple, meaningful, objective and reinforced.

A bonus structure based on these attributes can attract good employees by accurately outlining goals, focusing on company-wide objectives rather than the objectives of the individual worker, basing payouts on the individual, using multiple metrics and by measuring all outcomes.

1. Accurately Outlining Goals

The first step to a good bonus structure is to outline goals accurately. Bonuses should be based on performance, and goal-oriented structures ensure that the right performances are met and recognized. To define the goals of the bonus structure, each one should be specific, measurable, achievable, results-focused and time-bound.

Outlining each goal using these criteria makes it easier to assess whether employees have achieved their goals. This gives employees a sense of control over their earning power by letting them work toward defined milestones.

2. Focusing on Collective Objectives Rather Than Personal Outcomes

The best bonus structures are built on company-wide goals and objectives rather than on individual outcomes. This causes employees to think about the big picture and challenge themselves, rather than staying within the bubbles of their departments or daily tasks.

Setting a bonus structure based on company revenue or profitability is a great way to help employees work toward collective goals. If a company uses variable-based compensation, such as commissions, it should encourage positive behaviors that lead to profitable revenue, either through a reduction in expenses or an increase in sales.

For example, sales managers' goals should be to provide excellent customer service, which a company can incentivize by offering 1 to 2% of an account value for maintaining the client. This type of company perspective aligns company goals with personal goals and attracts good employees.

3. Basing the Payout on the Individual Employee

While the overall goals of a good bonus structure drive company initiatives, it's important to attract good employees through payouts that are based on the individual. Not all people are motivated by money, and a small business should create a structure that gives flexibility for employees who aren't driven by financial gains. Instead of a financial payout, it's possible to offer a bonus structure with increased responsibility, autonomy or a title promotion as the payout itself.

4. Using Multiple Metrics

Employees optimize their compensations based on how they are structured. If a bonus structure only provides one metric, all of the employees' efforts go towards optimizing that metric. Most of the time, employees need to make progress on multiple metrics to feel valued and grow in their careers, so it's important to incentivize multiple areas and challenge employees.

5. Measuring All Outcomes and Rewarding Achievements

To create a performance bonus for any person on a business team, find ways to measure the end results of every assignment or project in a quantifiable way. This goes especially for non-sales staff, and it goes a long way to attract and retain employees across working groups.

If a marketing team writes a series of articles for consumers to read, collect the numbers of how many people have read the article online and what the influx of consumers was after the article was posted to determine the measurable outcome of the project. If the project meets the requirements that have been laid out in the bonus structure, pay out employees accordingly. Measuring all outcomes, even for non-sales staff, will attract employees from multiple concentrations.

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