are several types of bonus programs. Some plans simply give employees
a certain share of the company profits (current profit sharing),
regardless of the performance of individuals or teams or perhaps
a bonus to the entire company based on the company's performance
(organization-wide bonus). Other programs give incentives to individuals
(individual incentive) or teams (team incentive/small group incentive)
to perform at or above certain thresholds. In some companies, manufacturing
teams are able to share in the gains from improvements in production
and quality (gain sharing). And a variety of cash and noncash awards
are possible for certain types of achievements in some companies
(spot bonus awards, noncash rewards). You can also earn bonuses
for being hired or getting your friend a job at your company.
One very basic type of bonus program is current profit sharing.
A company sets aside a predetermined amount, usually between 2.5
and 7.5 percent of payroll but sometimes as high as 15 percent,
as a bonus on top of base salary. Such bonuses depend on company
profits, either the entire company's profitability or from a given
line of business. Sometimes the bonuses are given across the board,
and sometimes they are given in larger percentages of compensation
the more someone makes.
purpose of profit sharing bonuses is to encourage employees to understand
how their work affects the company's performance and to improve
the company's profitability. Learn how your company makes money
and how your position can help it make more. The annual report and
other statements will give you an idea of how the company is performing.
It will also make you look good to your manager if you show an interest
in the company's performance.
This type of bonus program is most common in manufacturing plants
and is designed to reward productivity and improved product quality.
Gain sharing works best when employees become responsible
for production quantity and quality and are encouraged to improve
the way the product is made. This program reflects a philosophy
that employees know their job best.
sharing programs pay out bonuses for statistical improvements in
production and quality on a quarterly or sometimes monthly basis,
providing a sense of excitement for participants. These programs
are often very successful, transforming the manufacturing plant
into a center of employee commitment.
Some companies reward employees on the spot for achievements that
deserve special recognition. Spot bonus awards are typically
$50 and up and can be made by your immediate supervisor and any
higher-level person or peer in your company. You can get these for
just being extra helpful. The math is in employees' favor: companies
with spot bonus programs offer approximately 1 percent of payroll
and expect to give out such bonuses to 25 percent of the employees
eligible for them, allowing them to earn more than one instant bonus
in a year.
Although the wrong kind of "employee of the month" concept can be
cheesy, smarmy, and condescending, it's all in the execution. A
well designed noncash bonus program can instill pride and
improve employee morale. Employees who have done a great job should
have to come to the front of a crowded room at a special ceremony,
as if they are receiving an Academy Award. The certificate or trophy
should be thoughtfully and cleverly designed, and appropriate to
the occasion. These awards are sometimes coupled with a token tangible
award, such as a gift certificate, a bonus day off, or a great parking
know your company has a good noncash bonus program if these awards
are coveted, and if people who receive them display them proudly
at their desks or in their homes. Moreover, this type of award may
help you get a promotion or a new job, so include it on your resume.
No longer just for star athletes, sign-on bonuses have become
commonplace. Their usage now extends to nearly all level of employees
in all walks of life, especially when unemployment is low and top
talent is hard to find.
to new employees who have just joined the company, this award serves
two purposes: to establish goodwill and to buy out any compensation
"left on the table" from a previous employer.
second purpose is important to remember. Before joining a new company,
be sure to account for every kind of compensation program in which
you participate. If you are expecting a bonus in a few months, ask
your new employer to buy you out of it. If you have any stock options,
particularly options that are in the money, ask the employer to
buy them out (either in cash or new stock options).
forget to include profit-sharing bonuses or defined contributions
(for example, a 401(k) match or an Employee Stock Options Program
(ESOP)) made to your retirement account. Remember, a sign-on bonus,
at a minimum, is to keep you whole as you trade one set of compensation
programs for a new one.
to large signing bonuses may be paid over a period up to a year
to protect the company's interests.
bonus (also known as a task bonus or a milestone bonus)
Task bonuses are given to a team of employees for achieving
a milestone or for completing an important project. Usually these
bonuses are offered sparingly, but they have been used more frequently
in software and hardware development to encourage meeting tight
deadlines. Sometimes these programs incorporate a quality measure
to guard against too much focus on speed.
bonuses are in addition to any other compensation program in which
you participate and can be significant (one month's salary is not
uncommon, and certainly no less than one week). Again, this award
is for the kind of achievement that deserves mention in your resume.
In hot job markets, it can be difficult for employers to find qualified
personnel. When talent is scarce, many employers retain recruiters
to find candidates, typically paying the recruiter 20 to 30 percent
of the new hire's first-year pay. Many employers would rather not
pay this fee, and instead offer referral bonuses to employees
for recommending friends and acquaintances. Employers are comfortable
in hiring friends of employees because employees are unlikely to
recommend people who will make them look bad. So don't be afraid
to invite your friend to work at your company.
bonuses are typically hundreds to thousands of dollars and normally
depend on the level of the new hire. Some firms pay as much as $10,000
to $20,000 if you introduce a new senior person to the firm. So
if your former boss is a good fit for an opening, it might be worthwhile
to let your new company know.
Retention bonuses are given to employees in unusual circumstances,
such as a merger or acquisition, or when an important project needs
to be completed. These bonuses are designed to provide continuity
when there is potential uncertainty about an employee's continued
employment at the company. The bonus lets employees know their employer
wants them to complete the project or, in the case of a merger,
to stay until a specified date so that critical activities can continue
without disruption. Retention bonuses are usually about 10 to 15
percent of salary.
Holiday bonuses range from small gifts (for example, cash
or the ubiquitous holiday turkey) to one month's salary. The amount
is usually dictated by the company's practices. If you do receive
one month's salary, count it as part of your salary if you look
for work elsewhere. This practice is usually referred to as a "13-month
salary," and is not a true bonus since no performance is required
to receive it.
Sales commissions are awarded to salespeople for selling.
Usually these awards are paid out as a percentage of sales volume.
In some cases, commission percentages can increase with higher sales
volume. In fewer cases, the percentage can decrease. It all depends
on the scheme. Sales commissions are supposed to be a significant
source of income for sales employees, making up at least 50 percent
of total cash compensation.
you are accepting a new job or sales territory, ask for the previous
salesperson's sales performance to determine how likely you are
to achieve your quota and sales target for you to meet your personal
income goals. Also, construct a business plan based on your understanding
of your sales territory. This is key to understanding how easy or
difficult hitting your goals will be.
Dwight Ueda, Salary.com Contributor