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Bonus Plans as Motivational Tools?

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As a team of experienced HR Managers, we are often asked as to the value of Bonus schemes as tools to motivate and incentivise management and employees alike.  As a result, over many years of experience we have developed the view that with the absolute proviso that the scheme is properly established with clear rules and procedures, is managed and regularly reviewed to secure its continuity commercial and fiscal integrity and finally, bonus’s pays for themselves and are therefore self-generating, then bonus schemes are a positive and worthwhile motivational tool.

As with all such schemes, it is important for there to be mutual benefits to both the Company and its employees, so as to ensure that both parties, see the benefits and are fully committed to making the scheme a success. Therefore we would view the benefits for each party to be as follows:

 

Benefits – Company

  • Company Discretion Maintained – Imperative that all individual, branch or functional bonuses are wholly dependent upon the entire Company reaching its own profitability targets.
  • Bonus system – “Self Generating” – Any bonus’s to be paid out, must be self-generated by additional profitability, so as to secure additional value to the shareholders.
  • Targets for Senior Mgt & Key Company Performers – While important that such targets are fair and realistic, so that they motivate as opposed to demotivate the employee, this will ensure that senior managers and key performers such as the Sales team, are strongly focused on margins and overall profitability.
  • Targets being the primary basis for Assessment of Senior Mgt Team – Whilst leadership both of their own team and companywide, communication, recruitment, training and development of their team are all important, profitability and other targets are critical factors in assessing the effectiveness of management and key performers.
  • Targets mainly based on Company, Branch or Functional criteria and the direct contribution to Company as well as branch or functional profitability – To ensure the each individuals personal contribution contributes directly to the strategic targets of the Company in both existing markets and services.

Generating:

  • Increased Competitiveness between branches, functions etc.
  • Improved Retention of key management & performers to remain with the Company – Thereby providing motivation for other employees when they note that respected colleagues, remain with the Company.
  • Improved Company reputation and hence ability to attract experienced, high quality candidates in all disciplines such as management, functional roles, sales, general operations and accounting.
  • Reduced staff turnover, thereby saving recruitment, training, induction and development costs of new employees.

Benefits – Management, Key Performers & General Staff

  • Employee are more motivated/driven – Therefore will be less inclined to discount on margins unless commercially necessary and will be focused on realistic net profit as opposed to solely gross sales value.
  • Less likely to consider leaving to join competitors, thereby putting the Company at a competitive advantage in the UK and European markets.
  • As they are themselves motivated, management and key performers will act in a positive manner and are more likely to motivate their own staff.
  • Management and key performers will drive their employees to focus on profitability.
  • Employees will be less inclined to look for alternative roles and more inclined to encourage other professional contacts in the industry to join and make a career with the Company.
  • Management, key performers and general staff are more likely to enjoy their responsibilities and as a result, make less errors.

 

From our experience, the only downsides occur when bonus schemes are poorly structured, the wording is ambiguous and open to misinterpretation, when there is likely to be a mismatch between the expectations of the employee and that of the Company.  Therefore whilst it is critical for the structure and the wording to be clearly thought through and explicitly worded, in our view, the benefits of bonus schemes as a motivational tool, are beyond question.

 

Colin Perkins, PSM HR Outsourcing

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