What type of bonus scheme is best for your business? Here are 7 to consider.

Which is the best bonus scheme for your business? Learn about different options, and how to implement a successful compensation and reward strategy.

Petru Tinca • 
What type of bonus scheme is best for your business

Given the current recruitment and retention crisis that many sectors face post-pandemic, now is a great time to optimise your compensation and reward strategy. One area that needs immediate attention is the corporate bonus scheme. Just like with annual appraisals, the dynamic world we live in demands an evolution of the annual bonus scheme format into a more real-time and multi-dimensional incentive programme. This may include several inter-related bonus schemes and will most likely be implemented using a unifying HR software platform.

1. Signing bonuses

Historically, sign-on bonuses have remained on the fringe of HR strategy and generally involved sign-on deals being struck quietly in boardrooms to quickly onboard highly sought-after talent. But, in the post-pandemic era where chronic understaffing has become the norm, sign-on bonuses are going mainstream.

Indeed has noted a market-wide uptick in sign-on bonuses. In July 2022, 5.2% of job listings advertised a signing-on bonus which was 3 times the amount seen in 2019.

Adzuna also noted in March last year over 12,000 job vacancies offering start-up bonuses in sectors including social care, hospitality & catering, and logistics, which are three sectors experiencing chronic staff shortages. 

Hilton’s sign-on bonus was £1,500 for a job typically paying around £24,000 a year with £500 paid after 12 weeks and £1,000 paid after a year. Ventry Care Home’s was £250 on joining and £250 retention bonus after 12 months.

If you are working in a challenging sector with chronic understaffing, then a sign-on bonus, (with some form of staggered payment to limit exploitation of the policy), efficiently managed via HR Software could make sense.

2. Retention bonuses 

Retention bonuses reward employee loyalty and have historically been used to retain strategically important employees when competition for talent is particularly fierce, or during an M&A process when untimely resignations can even threaten the deal.

Given the present employee turnover problems which many sectors are facing, post-pandemic, retention bonuses have in response gone mainstream. Now, these bonuses are taking the form of cost-of-living payments designed to help employers retain economically stretched lower-paid employees who may be otherwise forced to move companies for higher pay. Such bonuses have been very popular in the lower ranks of the retail banking and food retail sector. If your HR software reports are showing employee turnover issues in your business, then retention bonuses may be appropriate.

3. Annual bonus scheme 

Paid once a year, the annual bonus scheme is also a stealth retention scheme as employees are disincentivised from leaving mid-year as they will normally forfeit their annual bonus if they do. This of course can mean that employee departures cluster together following the annual bonus payments, but this can be mitigated with timed countermeasures triggered via HR software.

In its simplest form, the annual bonus can simply be a guaranteed, year-end, lump sum payment that will have retention bonus qualities, like a Christmas bonus. Typically, annual bonus schemes are performance-related and linked to the achievement of goals managed via heavily automated HR software. This is a one-size-fits-all bonus scheme that will suit most businesses, especially ones with jobs where performance can be objectively and transparently measured with HR software, making it easy to sort high from low performers.

4. Profit-sharing bonuses

This bonus scheme provides an employee with a percentage of the company’s profit over a defined business period. The profit share pool, normally around 10% of profits, is distributed to employees based on their salary, grade, or job title derived from the internal HR software platform. The profit-sharing bonus is suited to companies that have a good track record of delivering profits. Take this example of Tangerine Group whose 57 staff shared a £400,000 profit share bonus pot this year. It’s the 16th consecutive year that they have paid a profit share and is the perfect example of an environment suited to a profit-share bonus scheme.

5. Candidate referral bonuses

This is a recruitment-based bonus that sees employees financially rewarded for successfully referring employees to the business via specialist HR software. The bonus is paid after the new hire completes their probation period typically. Referral incentives can be paid for roles that are proving difficult to hire or for occupations where there is a strong word-of-mouth networking culture in existence.

6. Team bonuses

Team bonuses are not the most high-profile benefit out there but have been shown to have a significant impact on productivity and so should be considered if you believe performance is being undermined by poor teamwork.

Research on the SHRM website reveals that ‘incentivised teams increased their performance by 45 percent; incentivised individuals increased performance an average of 27 percent.”. This was thought to be down to decreased social loafing because of peer pressure. Care should be taken when establishing team bonuses to avoid unhealthy competition, and incentives should be geared toward encouraging the team to compete against itself, e.g. (a new personal best), or should be focussed on the external competition.

7. Commission

If you have salespeople, then you would ideally have some sort of commission scheme where staff are paid a percentage of sales. Traditionally, sales schemes have been individualised but in recognition of the cross-functional highly collaborative modern sales process, team-based commission schemes managed via sophisticated HR software are now becoming popular.  Try to understand how individualistic or collaborative your own sales process is, and develop a team or individual commission plan to suit.

In truth, an organisation will most likely need to use a suite of bonus schemes efficiently managed via some unifying HR software such as SenseHR, to maximise the performance of its multifaceted teams in a dynamic and unpredictable marketplace.