“The bonus must be at least 20% of the salary”

Why it is worth implementing a bonus system

There are a million companies on the market – and right now they are ready to entice your employees. For example, Amazon is offering bonuses of $ 4,000 ahead of Christmas. So the company wants to attract staff in regions of the UK with high demand for the right employees. Amazon plans to close 20 thousand vacancies in the UK network ahead of the holidays.

According to WorldatWork and Compensation Advisory Partners, companies spend on average 6.5% of operating profit on employee benefits.

Alexandra Alkhimovich, a lecturer of the People Management course and a top manager with 10 years of experience (Luxoft), shared how to launch an effective bonus system for this money, and not just “drain” the company’s budget.

88% of employees believe that employers should include bonuses in the company’s budget. And a Gallup study found that not recognizing success is one of the top reasons people quit.

The bonus system helps:

• reduce fluidity
• keep motivated
• target the team for results
• foster a culture of feedback

Aleksandra: “There are three types of payments: salary, bonuses and benefits.

The main component of the package – salary – is guaranteed payments to an employee, which take into account his potential to perform work in the company within a certain time.

Bonus payments can be divided into several categories:

1. Incentive bonuses that are paid for a certain period, subject to the achievement of established indicators: monthly, quarterly, annual.

2. One-time bonuses that are paid at the discretion of the employer for any achievement: for example, overfulfillment of the plan, closing a major deal, introducing an innovation.

3. Incentive co-payments and allowances, which are paid not for results, but for the individual qualities of an employee: length of service in the company, performance of complex tasks, skills.

4. Compensation payments for certain categories of employees. For example, after relocation, a specialist is paid rent of housing.

5. Compensation allowances for employees whose work is associated with adverse or dangerous factors. ”

Benefits (“buns”) – payment for insurance, food, sports, constitute a separate category. Salary and bonuses affect motivation, while benefits form employee loyalty.

How to develop a bonus system: 5 tips from a top manager of Luxoft Ukraine

# 1. Don’t use the premium as a deterrent

Aleksandra: “It happens that the company introduces an annual one-time bonus in the amount of the salary -” 13th salary “for all employees. It is paid in the absence of sick leave for a year, which, in fact, turns the bonus from an incentive into an instrument of intimidation.

This is a bad strategy. After its implementation, employees are afraid to get sick, hide poor health, and sometimes even come to work with severe symptoms. ”

# 2. Link awards to performance

Aleksandra: “The principle” if one employee gets a bonus, we will pay for the whole department “- is ineffective.

In one of the top banks in Ukraine, every quarter they pay a bonus of 10% of the sum of three salaries to each employee of the call center. On the one hand, this is a pleasant additional monetary reward, on the other hand, this type of encouragement is not tied in any way to the results of work, does not perform a stimulating function, but is taken for granted. ”

When calculating premiums, consider qualitative and quantitative indicators . In the first case, make sure that they are specific, measurable, achievable, result-oriented and time-limited – that is, they comply with the SMART rule. In the second, analyze the number of errors, the amount of work done, and meeting deadlines.

Important: employees must be aware of the performance and conditions of bonuses. It is necessary to draw up a PDP (Performance & Development Plan) – an activity and development plan, which defines milestones, indicators, terms, training.

# 3. Give out bonuses of 20 +% of salary

Aleksandra: “For the bonus to affect productivity, its size must be at least 20% of the salary. But for different positions, the ratio of the constant and variable part of compensation may differ. For example, for specialists in the field of sales or recruiting, the share of the variable part (incentive payments, or bonuses) is 70-80%.

It can be calculated from the salary and in the format of ratios. For a sales manager, the recommended ratio of constant to variable compensation can be 30:70. Let’s say the total size is $ 370, then $ 110 is the salary, and $ 258 + can be earned by completing KPIs. ”

# 4. Give feedback when paying bonuses – so that the employee does not think out what he is being awarded for

Aleksandra: “It’s a bad practice when monetary rewards are not accompanied by the support of a manager. The effect of receiving a bonus will be higher if the manager writes a letter or informs in person what results the money was paid for. ”

# 5. Do not set “space” goals – so no one will receive an award

If a company sets unattainable plans for employees, this may mean:

• management incompetence
• management’s commitment to reduce business premium costs
• attempts to correct employees’ high self-esteem

The approved indicators must be real: even if it will be necessary to make efforts to achieve the goal, but at the same time, the probability of completing the task should be at least 70%.

Aleksandra: “Unattainable goals and indicators can lead to burnout, disappointment, decreased involvement, and sometimes even to dismissal”.

How to determine if the bonus system is not working

Aleksandra: “The bonus system should be based on the efficiency of employees. For example, if you pay bonuses to most of the staff, but the company’s performance is declining, it means that the bonus system is not related to the strategy, as well as to the results of the organization’s work, and requires revision.

Or another option: the company increases staff turnover, and the management decides to add an additional performance indicator to managers – the percentage of employee retention, on which the amount of the bonus will depend. This approach is reactive, since the problem already exists and you need to first understand the reasons for the turnover. It may be necessary to train managers in HR management practices – and only then change the compensation structure. ”

How to motivate the team, besides a high salary and bonuses

65% of employees prefer non-material ways of motivation. Surveys show that people remember paying for travel or home entertainment longer than paying money.

For example, Google offices are equipped with fitness centers, and you can also get massage and manual therapy sessions. Free lunches and snacks are offered in the kitchens and in the office cafe. The company can work flexibly or take extra days off, and the most effective employees are given 1–2 years of paid leave to think about projects.

At Netflix, it is normal practice to have a free work schedule and weekends “at your discretion.” This provides employees with independence and the ability to manage their own resources. And after the implementation of the DEI-trend (Diversity, Equity, Inclusion), based on attracting employees of different genders, sexual orientation and nationality, Netflix invited team members to pay for their hormone therapy and gender reassignment surgeries.

The British digital marketing agency Propellernet has built a Dream Ball. Employees of the company write their wishes on pieces of paper and throw them into the ball. Every time the KPI is successfully completed or the agency reaches the desired goal, managers pull out a random piece of paper and realize the dream of one of the employees.

Among the team’s fulfilled wishes is a trip to the FIFA World Cup and a motorcycle trip across Africa. To finance such ventures, the agency allocates 5% of the annual profits.

The American job search portal Glassdoor has published the results of a study of goodies from 20 top employers according to employee reviews. SalesForce, American Express and Airbnb’s social package includes benefits for which 80% of employees are willing to refuse a pay increase.

How to “please” employees with benefits

If the team is small, interview the staff – individually, find out what is important to people. In a company with 500+ employees, conduct online surveys and track how people are using the benefits provided.

The highest stage in the evolution of the system of incentives and benefits is the employer’s value proposition (EVP) – a set of tangible and intangible benefits that a company can offer to an employee. This is an ecosystem that includes:

• job progress, new tasks or change of direction
• employee recognition
• reliability of the company, its reputation
• benefits
• salary, bonuses and bonuses

Aleksandra: “According to a study by the Perkbox platform, in 2021 the most pleasant incentives for attracting and retaining specialists are:

• employee discounts (52%)
• more recognition and feedback on completed tasks (42%)
• unlimited vacation (41%)
• Pay for home entertainment like Netflix subscriptions (41%)
• the ability to work remotely (38%)
• paid breakfast or lunch (33%)
• free PCR test (28%)
• a birthday present from the company (26%).

Finally, remember that any bonus system is temporary. It is a tool for achieving the company’s strategy that needs to be reviewed when changes occur inside and outside the organization.