What is a Bonus?

By Clare Parkinson
22 May 2018

Bonus pay is a sum of money that you add to an employee's wages as a reward for their good results. It's commonly distributed either Monthly, Quarterly, Six-monthly or Annually.

Bonus Scheme Examples

Rewarding an individual with bonus schemes is still a great way to keep them incentivised to produce great results. You could offer bonuses to individual staff, or you could use team bonuses, and/or even have a company-wide reward. Each has its own merits. A work bonus is normally either discretionary or non-discretionary. Both discretionary and non-discretionary bonuses can assist in talent retention and acquisition. Don't know what the difference is? Don't worry. You will soon.

Discretionary Bonus

You pay one of these, simply put, at your discretion as a boss. This might be once a year. A discretionary bonus rewards the achieved success of a person or a team. You should write this reward entitlement into their contracts. Make it known that the better they perform, the better their annual bonus will likely be. You decide what amount you pay out in bonuses, based on factors like standard of performance, total sales, leads generated, clients renewed, revenue gained, and so on. You could set a target.

For example: if the company generates over (a certain amount) in revenue, staff will receive a 3% bonus at the end of the year. Then scale the reward—based on the performance—up or down. This example was a company bonus. You could do the same for individuals and/or teams. If your staff believe they will earn a lucrative one off bonus payment at the end of the year, they will stay motivated.

Non-discretionary Bonus

You use non-discretionary bonuses to incentivise strong future performance. Many bonuses in the workplace of sales and recruitment firms work by the employer outlining the performance criteria that an employee must satisfy to earn their reward. You write the criteria that you want your staff to meet—and in so doing, earn their bonus—in their contract. Most firms that use these bonuses pay out on a routine basis—monthly or quarterly, for example. You will have agreed on this in their contract.

Create a table that shows what amount or percentage an employee will get if they meet a satisfactory level of performance. Then increase the amount for a better level of performance—perhaps if they bring in an additional 15% revenue, for example. And go from there. Knowing what results they need for what they deem a good bonus, your staff set their own targets because they want to achieve a certain goal.

The bigger the reward and the goal, the harder they'll work. Both of these types of bonuses can help line managers who want to keep their teams motivated. Bear in mind that when you write a bonus into someone's contract, you become legally obligated to pay it if they meet the targets that you set them. What's more, even if financial strain or other factors affect the business, you will still have to pay out.

Cash or Non-cash Bonus?

You don't have to use money as the reward at the end of great results for your staff.

Other options include:

  • Vouchers or gift cards
  • Events such as meals at up-market restaurants
  • Days out—think theme parks, go-karting days, a pair of football tickets, etc.
  • Food hampers or bottles of alcohol
  • Electronic devices or other luxury items

Speak to an Expert

If you have any questions about work bonuses, please contact our employment law experts today on 0808 145 3382.

About the Author

Croner employee Clare Parkinson

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.

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