Why Most Bonus Plans Fail

One inevitable conversation seems to take place in almost every household at the end of every year. "Are you getting a bonus?" The truth is most employees don't know when to expect a bonus, and for this reason, bonus systems can be disappointing because they’re always an elusive mystery. Often employees don't understand why they're being given a bonus, what the company did to gain extra cash, or when to expect a bonus. That's a serious disconnect due to a lack of communication. And a huge opportunity missed to use an incentive plan as a motivation tool. 

Creating an Effective Bonus Plan

The most effective bonus plan is one that ties incentives to company performance. Most bonus plans fail to motivate employees because there's not enough communication built around them and employees don't make the connection between how their daily performance fuels their bonus payout. If your bonus plan isn't helping you reach company goals, it's not as effective as it could be.

Our Bonus Plan Design Service

At The Great Game of Business, our bonus plan design service includes:

• Bonus tool excel sheet
• Coaching session(s) – Up to 4 hours with a certified coach where you'll receive one-on-one help building your company's bonus program

Bonus Plan Design Process

When designing a bonus program, there are 7 basic building blocks we use to build companies an effective incentive plan including:

1. Self-Funded - to ensure the financial health of the company, the bonus plan must be completely self-funded. To do this, we build a financial threshold (minimum profit amount required to ensure the long-term success of the company) and any profit that surpasses the threshold is used to fund the bonus payout.

2. Gain-share - Any money the company gains over the threshold is shared between the company and employees. We do a 50/50 split, allocating half of the profit to the bonus payout and half to the company. You might ask, "Why can’t we allocate every dollar over the threshold to a bonus payout? Haven’t we covered all the needs of the business?” You might have covered all of the planned needs of the business, but you should consider extra funds to cover unplanned needs and invest in growth.

3. Rally People Around A Measurable Goal - A crucial part in building a bonus plan is knowing where you're going. What do you want to accomplish with your bonus plan? Choose a measurable goal that your team can easily track and report on. Choose a bonus target that everyone can impact to ensure the entire organization stays focused on the same target. Be sure you clearly identify and explain how each department and work group contributes to the end goal. 

4. Line-of-Sight - Tying financial rewards to performance serves as an opportunity to teach all employees how they affect the specific metric your bonus is based on. This will give them a line-of-sight into your business’ daily operations that they may have never had before. Once employees understand how they are individually driving the bonus with their actions, you better believe they’ll start to work harder and work smarter.

5. Give People More Opportunities to Win - Instead of one large payout at the end of the year, consider quarterly payouts. Giving people opportunities to win early in the year and more frequently helps keep the momentum up. When employees see extra cash coming their way throughout the year it's easier to stay motivated by the bonus program. Whereas working hard all year long at the shot of possibly getting a bonus at the end of the year can feel like a reward that's too far away to stay motivated by.

6. COMMUNICATE - People aren't motivated by what they're unaware of. Make sure people understand how the bonus program works  and how they impact it. Communicate regularly and give frequent updates on the progress employees are making towards a bonus payout. If you don't do a regular progress report on the bonus program, employees will forget about it and motivation will die out.

7. Celebrate and Give Recognition - Personalized feedback and expressing gratitude for exceptional work goes a long way. If employees are succeeding and making progress towards a large bonus payout, be sure to recognize their efforts. Get specific about what they're doing right. Employees want to know what they're doing a good job on and where their efforts are making a difference. Be sure to celebrate every small win along the way!

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