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Money Motivates: 4 Steps Toward Creating an Effective Bonus Plan

Implementing bonus plans can help boost employee performance and motivation.

Many companies cut their bonus plans when the economic downturn took its toll. While this strategy may have helped them get through the worst when cutting every penny counted, the lack of a bonus plan may hold companies back when they want to expand and need to retain their top performers to do it. Depending on their position, talented and qualified employees can be hard to come by, and if your company fails to properly reward hard workers, you could lose them to another firm.

Still, there's little point in setting up an incentive-based plan if the company doesn't see a reward in return for the extra payments it gives employees. In a recent discussion, Proformative members debated how to incentivize good performance for teams that aren't directly involved in sales and went over the key considerations involved in launching such bonus programs. Here are steps toward creating one for your company. 

1. Determine What You Want the Plan to Achieve
Announcing a bonus plan may initially spark extra enthusiasm among employees, but that could fade over the long term. Determine what you want your staff members and company as a whole to get out of the program. Perhaps you're hoping to give top employees a reason to remain in their current positions or a way to encourage everyone, not just the sales team, to work harder toward a common goal. 

2. Keep Plans Simple and Achievable
Make sure any bonus strategy you put in place is actually reachable. An "all or nothing" scenario could ruin an entire team's year with just one poor month. "If it becomes clear in Q1 that the plan will not payout, your plan is dead," a Proformative member and finance executive noted on the site. "Therefore, you should consider including some level of payout in the plan that can be driven by qualitative performance." 

Putting the terms of the bonus plan in plain language is also key. Non-sales workers may be unfamiliar with such plans and be unsure of exactly how they work and what they need to do in order to achieve goals and get their well-deserved bonuses. 

3. Get Employees Invested In the Company
Teams that have a vested interest in helping a company succeed will want to go above and beyond to improve processes and please clients. Proformative member Christine Jahn, CFO at Atlantic Wireless Communications, feels one of the best ways to get employees more invested in the businesses is to "get them thinking like an owner." Such a philosophy has resulted in employees actively saving her company money, including those in the accounting department. By cutting checks rather than pay some bills online, for example, one employee avoided so-called convenience charges that were piling up on the company's payables. "Simple things like that has changed the way people think and do their jobs," Jahn wrote. Consider what you can do to ensure your teams have that owner mindset and will take the additional time to ensure projects are successful.

4. Incorporate Employee Goals
While many organizations implement bonus plans that rely upon company profits and growth, some also take into consideration whether  employees reache their own personal goals. Not only motivational to employees, this strategy could benefit the company in the long run. At Centro, which provides software to advertising companies, the bonus program is based on a percentage of salary. Half the bonus is tied to revenue goals and the other is tied to personal goals, controller Carrie Roesner wrote in the Ask & Share section of Proformative. Employees come up with about five goals every year, such as shortening the monthly close time by a certain number of dates, that are later assessed for a bonus payout. "I personally like that the program has one part tied to company performance to keep everyone vested in the company doing well and then the other half keeps everyone motivated to improve the operationas and/or their skill set, which ultimately helps the company as well," Roesner wrote.