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How to Create an Employee Bonus Plan That Supports Retention

by Elle Mason - May 13, 2022

With the Great Resignation in full swing, a basic compensation offer is rarely cutting it. Many HR teams are scrambling to find additional ways and incentives to entice and keep new hires happy. But bonuses can be an often overlooked element of compensation that can do a lot for employee retention. This resource will cover different types of bonus programs, as well as how to decide what makes the most sense for your business’s payroll.

What Is An Employee Retention Bonus Plan?

A bonus can be any form of direct compensation that falls outside of the predetermined salary or pay rate – typically given as a form of reward or incentive based around performance. A bonus plan, more broadly, is a structured form of distributing bonuses to employees and outlines things like eligibility, criteria, amount and frequency.

What types of employee bonus plans exist?

Annual (or Quarterly) Individual or Team Bonuses

Perhaps the most widely-known and commonly-given, annual (or quarterly) bonuses are typically given as a result of meeting performance targets. This type of bonus plan can be found across industries, and when the work is team-dependent, it often takes the form of a team-wide bonus. Whether they’re annual or quarterly depends on the organizational performance cycle. In seasonal sales roles, for example, quarterly may make the most sense, whereas in a sector where results take longer, annual may make the most sense.

Spot or Ad-hoc Bonuses

As the name implies, these are typically given on the spot for performance reasons or as a general incentive or show of gratitude. These bonuses are typically much smaller in amount, but the actual amount ultimately depends on the organization and the frequency of the bonuses. For some, it may be a $25 gift card while for others, it may be $1,000.

Referral Bonuses

These are typically given as the result of a successful hire. Organizations can consider using these especially for roles that are unique or otherwise difficult-to-fill, or roles that are aligned with organizational goals, such as diversity. It’s common for the bonus to be given after the new hire completes their probationary period at the organization.

Hiring or Signing Bonuses

These are extremely common in some industries – like IT or consulting – but not necessarily in others. Still, they can be a great way to entice a highly desirable candidate to, for example, move to a new city or state, or take your role over another offer. They are sometimes distributed in a staggered way to avoid a job-hopping scenario. Other times, they will include a percentage-based repayment clause if the employee leaves the organization in under a year.

Profit-Sharing Bonuses

This type of bonus allows employees to receive a percentage of company profits if the organization has a better-than-average year, which in turn, can motivate them throughout the year in terms of productivity and performance. The approach typically involves either a cash bonus or a direct contribution to the employee’s 401(k) but also comes with regulatory requirements so organization’s considering this bonus type should talk to their accountants or financial advisors.

Considerations when structuring an employee bonus plan

Financial Constraints

If the organization is already under financial duress, then additional compensation in the form of bonuses may not be the best option. While some companies have tried to balance rewards with financial constraints by, for example, introducing paycuts or layoffs but hosting an expensive holiday party – this is not typically well-received.

Market Or Job Type Trends

In some fields, bonuses are so commonplace that an organization would be at a disadvantage by not offering them. And even within fields where they aren’t the norm, there may be roles (e.g. sales) where they are expected. The best way to stay competitive is understanding what the market and your peers are offering.

Follow-Through

Bonuses can be an excellent way to show appreciation and drive retention – as long as you follow through on your promise. There are few things more demoralizing and upsetting than rolling out a bonus structure at the start of a cycle… and then failing to deliver. In fact, it might drive employees to leave the organization altogether. Given that, consider bonus structures as seriously as salary. Just as a company wouldn’t skip a paycheck and say “Sorry, we don’t have it this week.” don’t promise a bonus based on outcomes if you’re uncertain you’ll be able to deliver.

How GoCo Can Help You Establish An Employee Bonus Plan

Next Level HR Document Management – As with any policy or incentive program, having digital documentation and acknowledgement can lift a great burden off of HR’s shoulders. With HR’s digital document and policy management feature, HR managers can easily transform bonus plans into fillable, signable, reportable forms, create and collect custom fields, send, edit, and resend documents in seconds (i.e. an employee’s bonus increases). All actions are stored in GoCo for compliance purposes as well.

See how GoCo can simplify your HR