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The Complete Guide to Employee Bonus Plans

Disclosure: This content is reader-supported, which means if you click on some of our links that we may earn a commission.

Do you want to give recognition to your employees beyond the usual paycheck? That can happen in the form of employee bonus plans. But how do you go about successfully creating a plan that keeps your employees engaged, motivated, and appreciated? Below, we go through the top tips you need to get started. 

Why Are Employee Bonus Plans So Important?

Picture this: Your employees stay on their A-game, get the work done on time, and go the extra mile to complete projects and tasks with finesse and attention to detail. Your company grows, you’re ahead of the game and completely obliterating your KPIs. How exactly do you start making this your reality?

Well, you can’t exactly wave a magic wand and call it a day. But you can buy it. Kind of. You see, an employee bonus plan offers your employees incentives to strive for. If they know they’ll only get compensated up to a certain amount, they don’t have much of a reason to put in extra work and energy.

Take it from the huge Chinese telecom company Huawei. Once it implemented it’s employee ownership plan, it saw positive results in both productivity and innovation. Granted, Huawei is a huge company that employs hundreds of thousands of employees around the world. 

But that doesn’t mean that a profit sharing program, or another incentive program, can’t work to create positive growth within your company regardless of how big or small it is. Let’s look at some tips on how you can make that happen. 

Quick Tips to Improve Employee Bonus Plans Today 

The first step in implementing an employee bonus program is making sure you’re equipped with the tools to manage it effectively. This is especially true the bigger your workforce.

Easy-to-use software like Bonusly can help you put together a rewards system that works based on feedback, recognition, and rewards. Companies like Chobani, Survey Monkey, and Hulu already use it to boost engagement and create a motivated team of employees.  

Bonusly is built to get both employees and leadership involved in giving feedback, handing out rewards, and doling out recognition for work well done. Not only that, but it also lets you create and send out surveys so you can get an authentic look into how employees feel about your incentives.

Bonusly works on a rewards basis. So you can use it to reward your employees with all kinds of creative incentives that include gifts, experiences, or professional development opportunities. 

Introduce Bonus Plans During The Onboarding Process

Let your employees know about your employee bonus plan as soon as they’re hired. The sooner you get them involved in the process of striving for bonuses through better performance, the sooner they can get started working towards the goal that’ll get them the reward. 

This is especially important when trying to make your employee bonus strategy a long-term play that’s worked into your company culture. The sooner your employees get involved and informed, the more they can help make bonuses a part of the overall work culture. 

Without a strategy that informs and engages your employees, you might find your employee bonus efforts falling flat. Employees are already juggling a lot. You want to make the bonus process as accessible and as easy as possible. If employees have to go digging for an employee bonus plan they think they heard about a while back, chances are they won’t. 

Vary Your Bonuses

Bonuses don’t have to be tied directly to the employees’ line of work. You can give monetary incentives or rewards for many different things and at various times. 

Here are a few types of bonuses to keep in mind when you’re drawing out your strategy:

Referral bonus: Do you have an employee referral program in place? You can offer rewards or money for every successful client or candidate referral an employee makes. 

Sign-on bonus: Depending on how competitive the job market is and the role you’re trying to fill, a sign-on bonus can help add an extra incentive for employees to stay with the company and be productive long-term. A sign-on bonus is simply a lump sum of cash you give an employee when you sign them on as part of your offer. Typically, a sign-on bonus often comes with a contractual agreement to stay with the company for a certain amount of time, usually at least six to 12 months.

Retention bonus: Are you having trouble with higher turnover rates than usual? Retention rate bonuses can help you keep your employees for longer while spending less on the process of acquiring someone new. It’s a solid way to keep long-time employees interested, especially if they’re getting better offers elsewhere. 

Holiday bonus: Holiday bonuses can either be tied to an employee’s performance or simply be a thank you employees get at the end of the year for all the effort they’ve invested into the company. Holiday bonuses are also a great way to motivate employees and increase their overall productivity. 

Commissions: Though commissions tend to be more of a norm amongst sales-motivated teams, they’re also a great way to keep your employees engaged. 

Profit-sharing bonus: Awarding a percentage of a company’s profits is yet another way to engage and retain your best employees. You can give out employee bonuses based on how well the company performed for the year. 

Knowing which bonuses work best for your employees can take some trial and error. You can always try offering a mix of bonuses to see what gets results and what doesn’t. The point is that there isn’t only one type of bonus you can give out, which means you can get creative. Chances are, you’ll find some bonuses do a better job than others in keeping your employees engaged. 

Keep in mind that while employee bonuses can be monetary, those aren’t the only things that motivate employees. You can always mix it up by awarding experiences, meaningful company gifts, and of course, throwing recognition into the mix will enhance the experience. 

Plan For Frequent Payouts

As opposed to yearly payouts, frequent payouts can be the way to go with your employee bonus plan. Why? Because it sets shorter and easier-to-visualize milestones that do a better job of keeping your employees motivated. 

Instead of offering a lump sum at the end of the year, which can feel like forever, you can offer smaller portions of that bonus throughout the year. This can be quarterly, monthly, or at a rate that works with your company’s cash flow. In short, smaller, more frequent payouts can help keep your employee bonus plan afloat and engaging. 

As you check in with employees to award them based on their work during a shorter period of time, it works as a frequent feedback loop that they can ride indefinitely.  

Incorporate Company-Wide Recognition

Everyone loves to be told they’re doing a great job. They love it even more when it’s publicly acknowledged. Make it a point to recognize your best performers publicly and often. Besides compensating them financially, it’s a great way to showcase how much of a contribution they’re making to the company and earn respect from their peers.

This can happen through a company ceremony, on your company bulletin boards, or a company-wide email. Here’s where you can get as creative as you want with it. There isn’t a correct way to recognize employees that’s set in stone. How you go about showing employee recognition will depend on what your existing company culture is. 

Do your employees respond well to competition? Are you cultivating a more team-driven environment? Do you want to recognize individualism? Or maybe you want to publicly reward employees for innovative thinking. 

Are different milestones publicly recognized that aren’t directly tied to your employee bonus plan? 

Answering these questions can help you round out a better recognition strategy that’s effective and garners results. What you publicly recognize as good is what other employees will tend to strive for, too. It’s all about creating a positive feedback loop that involves your workforce without alienating employees or emphasizing the wrong things. 

Long-Term Strategies for Employee Bonus Plans

Planning the types of bonuses you’ll give out and ensuring your employees are publicly recognized for their hard work are solid short-term strategies to make sure you’re getting the most out of your employee bonus plan. 

You can also do longer-term things to make sure your employee bonus strategy doesn’t stagnate and evolves with changing workforces. 

Be Proactive About Involving Management

HR is primarily responsible for creating and implementing an employee bonus plan that bears results. But this doesn’t mean they have to go at it alone. Being proactive about involving key managers in the process can be a critical differentiator between a successful employee bonus strategy and one that falls flat.

With long-term leadership involvement, you have a better chance at motivating your employees to improve their performance. Managers can oversee bonus plans, motivate employees, and take note of any extra effort being made. Management can also play a crucial part in the recognition process so that employees truly feel appreciated by their immediate superiors. 

Managers are also keyed in on the day-to-day tasks and successes of their employees. They may have vital and creative ideas for bonus plans that their employees will respond best to.

Keep Employees Informed

Your bonus program won’t work if your employees aren’t aware of how it works (or that it even exists). It’s important to keep employees involved by ensuring they’re armed with the knowledge they need to strive for the bonus incentive. 

This is easily done through meetings, orientations, the employee handbook, or company-wide emails. What performance is expected of them to receive their bonus? How often do you give out bonuses? What type of bonuses are available, and how many can they qualify for? How can they keep track of their progress and gauge their performance? 

These are all questions employees need answers to if they’re to participate in any employee bonus plans you try to integrate into the workplace. The more information your employees have, the better decisions they can make and the harder they will work to hit bonus-related milestones. 

Survey Your Workforce

Sometimes, the best way to know the right answer to something is to go out and ask. How will you know what incentives and bonuses your employees really value? It can be as simple as surveying them to learn what they’re thinking.

This might take a bit more effort and time. But in the end, you’ll have more accurate information that can help shape your bonus strategy for the better. There are many ways you can go about the surveying process. 

For instance, you can survey employees leaving the company as to what was most effective for them or what they wish would have been handled differently. You can directly ask about their satisfaction with your bonus programs to see what they liked and what didn’t register. 

You could also send an anonymous survey out to all existing employees to ask their opinions on current bonus plans and their ideas for better bonuses or incentives. Making it anonymous allows employees to give honest feedback without fear of retaliation.

Surveying can be extended to management, too. What do they see that’s working for their teams? What isn’t working well? What do they think is a better option for employees to engage with than what’s currently used? Asking these questions can lead to better answers and, ultimately, better outcomes. 

Next Steps

Though having an employee bonus plan is a great way to motivate and engage your employees, keep in mind that it isn’t a substitute for effective management. Instead, it’s a supplemental perk your company can offer to increase employee morale and build an engaged and productive company culture. 

Our guide to HR software gives you a glimpse into the best tools on the market you can use to ensure you enhance your employee management process. Applicant tracking systems help you manage your hiring strategy and can help you employ the best candidate for the job. That’s why we wrote a guide to help you pick one that’ll fit your business. 

Need to outsource HR? We have a guide on everything you need to know about the best services to get that done. Moreover, finding effective payroll software that helps you pay your employees accurately and on time is part of keeping a growing company alive. We recommend you check that out, too. It wouldn’t hurt to bookmark whatever you find the most helpful for future reference.  

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