Annual Incentive Bonuses
As a new year begins, it’s an ideal time to think about bonuses for 2020. Most bonus programs fall into two main categories: discretionary and non-discretionary.
Discretionary bonuses are bonuses given at an employer’s discretion. Most of our clients rely on discretionary bonuses because they tend to be smaller and do not have more formal programs. Unlike discretionary bonuses, non-discretionary bonuses are generally tied to the achievement of specific goals and objectives. The most common type of non-discretionary bonus is the incentive bonus.
Annual Incentive Bonuses allow organizations to tie payments to the achievement of specific performance goals that impact the profitability or an important achievement of the organization. Annual incentive bonuses can be an effective way to reward top performers, and since these payments are generally one-time occurrences that don’t increase base salaries, the amounts awarded can often be larger and more meaningful to employees.
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Setting meaningful incentive bonus goals takes time and consideration. Goals for some positions may be obvious – delivery dates, error rates, and sales goals are easy examples – but performance standards for other positions, such as those for administrative roles, may be harder to quantify and results may not be within an employee’s control.
As you consider setting incentive bonuses at the start of a new year, here's our best advice:
- Quantify performance standards as much as possible. If there is data available to evaluate performance, use it.
- Work with your employee to identify performance standards that make sense and ensure the employee knows what is expected of him or her.
- Don’t just rely on the profitability of the company as a whole – very few employees have a direct line-of-sight between their day-to-day tasks and the overall achievements of the organization.
- Check in frequently to ensure your employees know what’s expected of them, have the tools and equipment necessary to do the work well, and get regular and ongoing positive feedback from you.
Setting appropriate performance standards is a critical part of employee engagement and overall corporate success. As we enter 2020, now is the perfect time to start thinking about your annual incentive bonuses. Of course, if you need any help, we’re always here to assist you. Happy New Year!
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The Monday HR Minute, brought to you by Affinity HR Group, is designed to provide you with practical, applicable human resources and management advice and information in a format that will take you 60 seconds or less to read. We believe that by dedicating just one minute a week to thinking about people management practices, business owners and managers can make enormous strides in improving workplace performance. |
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Affinity HR Group is a full service human resources consulting firm that specializes in advising small and medium-sized enterprises. Our services include recruiting and selection, HR policies and compliance, ad hoc HR support, compensation and performance management, and training and development. We are an endorsed HR partner of a number of leading national trade associations and offer free initial consultations and discounted services to their member companies.
Email us at contact@affinityhrgroup.com or call 877-660-6400.
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