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Employers' Guide to HR

Bonus Schemes

Bonus schemes are designed to motivate employees by rewarding them for achieving particular targets or standards previously agreed with the employer.
Last Modified on: 2004/05/27 14:55
Last Reviewed on: 2009/08/28 16:23

These payments are in addition to basic salary and are usually paid as a cash reward, although some schemes may award shares as part of the bonus package. The design of bonus schemes varies widely, however effective schemes will have certain advantages in common:

  • They allow the company to focus effort on areas that can maximise performance and profit
  • A good scheme can help to recruit, motivate and retain staff
  • They can support other important company objectives, such as promoting effective team working or reducing sickness absence
  • Payment is not consolidated into base salary, and is therefore not perpetuated regardless of future performance
  • They can raise management and employee awareness and recognition of good individual/group work
  • They can increase employee understanding, involvement and commitment to the business
  • Schemes can be designed to be flexible, easily administered and to more than cover the costs.

However, even well designed schemes can have certain disadvantages:

  • Forcing employees to concentrate on the performance targets can stifle their creativity and innovation
  • Not all jobs can show a clear link between employee performance and productivity/profit gains, and it might be difficult to design an effective bonus scheme for these posts, for example some employees working in research & development
  • Measurement of performance can be difficult and arbitrary, and if ...


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