Bonus plans for small businesses: Crafting incentive programs that drive impact

It’s part of human nature to be driven by rewards – whether we’re training for that half marathon, spending time in the kitchen to create a delicious meal or just waiting by the door for that online shopping package to arrive. We crave the dopamine hit of a reward, and are often motivated to keep that same hit going in all walks of life.

It’s unsurprising then that many businesses have tapped into that aspect of human nature by introducing incentive programs and bonus plans. These are designed to boost performance, drive business success, and motivate employees by celebrating work well done.

If you’re keen to create a high-performance culture in your business with bonuses and incentives, we’ve got some ideas to get you started.

What are employee incentive programs?

Employee incentive programs are a collection of rewards and benefits, used by employers to motivate and celebrate their employees. There's a huge variety of programs that a business might use, from bonuses driven by performance metrics to specific awards for projects. Businesses might also tie in their company values, by giving out rewards to employees demonstrating those same values.

Why should businesses reward employees for good performance?

Rewards are a great way to motivate and show appreciation to your team when they go above and beyond at work. By offering a reward as a form of recognition, your team will feel valued and cared for. After all, who doesn’t love a genuine and thoughtful gesture?

The stats speak for themselves – companies who actively recognise and reward their team are more likely to see an uplift in levels of accountability, responsibility and leadership initiatives across the board.

Types of rewards

There are a number of different rewards and incentives that you can offer your team as an employer.

Bonuses

Bonuses are additional financial compensation, often rewarded based on performance on top of a standard compensation package or employee’s salary. There are a number of types of employee bonuses that you might want to make available to your team, such as:

• Incentive bonuses - Given to employees on a consistent basis, these bonuses are paid out if an employee reaches certain performance criteria.
• One-off bonuses - An infrequent bonus that is awarded as a result of a certain achievement.

Offering bonuses – either in a pre-set bonus plan or awarded as a one-off – can be a great motivator for your team. However, remember that you may be subject to tax on these payments, so we’d always recommend that you first seek legal and tax advice before bringing a bonus plan into play.

Monetary rewards

Gift cards and redeemable store points are another way of offering monetary rewards for your team. Like bonuses, these can still be subject to tax so again, take the necessary steps to ensure you’re awarding them in a way that is compliant.

Non-financial rewards

Of course, you don’t have to exclusively offer financial rewards for your team. Non-financial rewards can be cost-effective for businesses, offering meaningful recognition without large financial outlays.

Some non-financial rewards could include:

• Recognition and praise – reward certificates, trophies or thank you notes from the leadership team
• Team-building activities – lunch clubs for high performers, off-site retreats or social events
• Gifts – tickets for events or activities of interest, company merchandise, free hot drinks
• Health and wellbeing programs – yoga classes, wellness challenges or subsidised gym memberships
• Extra time off – additional leave days, mental health days or time off for passion projects

How to set up a bonus or incentive plan

Choose how you’re going to reward and recognise your team

The first step of developing incentive programs is to determine how you’ll reward and recognise your team. Our suggestion? Ask your team how they want to be rewarded and recognised! Sending around a survey can make all the difference, especially because they’ll be rewarded in ways that matter to them. From here, you can assess whether certain initiatives fit within your budget.

Don’t let your imagination run away with you when setting up reward incentives for your business. Especially in a small business, your company budget might not stretch that far. Which brings us to the next point…

Set a budget

Now you know how you want to reward and recognise your team, it’s time to set a budget. A clear budget can help guide the types of rewards you can introduce into your business and set the cadence of when they’ll be awarded.

Not sure how to get started? We suggest having a rough starting budget to begin with, relative to the number of employees you have. From here, you can map out the incentives, the cadence and ultimately the annual cost of your reward and recognition strategy. If you’re going through a period of growth, you should consider projected headcount growth in these numbers.

Determine the tools and channels you want to use

Now you’ve determined your budget and how you want to reward your team, it’s time to choose the tools and channels you’d like to use when rewarding and recognising your team. End-to-end employment platforms like Employment Hero come with built-in benefits and recognition systems for easy rewards.

Don't forget to champion your incentive program through internal communication or dedicate time during your meetings. It’s also crucial that you set out clear and fair guidelines around how an incentive is rewarded. That could include specific criteria around employee performance and behaviours. This can ensure that incentives are being given out fairly, regardless of which team member is being recognised. 

Get personal

It’s important for managers to be specific, personal and accurate when rewarding an employee. They should clearly outline exactly what they did well, how it impacted a particular project or scenario and highlight how that happened because of their individual successes or participation.

The more personal recognition, the better it shows your employee that you really were paying attention to them and their work. It will also give more meaning to the reward that they receive.

Put the plan into action and communicate success

You might want to consider publicising employee accomplishments that have earned incentives across multiple forums, such as company newsletters, dashboards and in team meetings.

Technology-based recognition programs are a great way to do this. They should be mobile-friendly, allowing recognition to happen anytime, anywhere. If you don’t have the budget to invest in this type of software, you could initiate something as simple as a Slack channel dedicated to recognising hard work.

Top tips for success

Rewards and incentives can be a great part of a high-performing company culture but as with anything worthwhile, the trick is sticking to it. Here are our rules for an effective incentive program.

Hero tip 1 – Be transparent

Want your incentive program to take off? Then transparency is key. For starters, what specific behaviours do you want to celebrate? Who should be displaying them? How are you going to recognise them? And how will you reward them? By answering these questions, leadership can avoid any accusations of bias or preferential treatment.

Introduce your reward and recognition program to the whole company and clearly outline the specifics. The better you articulate what is expected of your employees and communicate what behaviours or characteristics you want them to aspire to, the easier it will be for them to display them.

Hero tip 2 – Be consistent

In order for your employee incentive program to be successful, leadership and team managers need to be consistent with it. That means making a concerted effort to reward and recognise employees frequently and – if their employees are comfortable with it – loudly.

Every part of your business should have its own KPIs, and the teams responsible for them should be rewarded when they meet or exceed them. For example, the sales team might get all the glory for bringing in the big bucks, but the support team might be kicking goals under the radar. Keep all your teams engaged in the incentive program – and if you don’t know what their KPIs are, they probably don’t either.

Hero tip 3 – Be authentic

No matter how supported your reward and recognition program is, if culture and employee engagement isn’t actually a priority for your business, a reward and recognition program won’t have the same impact. Giving employees a gift card won’t negate bigger issues in company culture, so ensure that you’re doing what you can to boost employee satisfaction in other ways too.

Using bonus plans and incentives to boost employee morale is just the start

Introducing an employee incentive program can drive business success by increasing employee retention, reducing turnover costs, and boosting overall productivity. If you’re driven to retain and motivate your employees, as well as attract new team members, then bringing in tangible rewards is a great way to do it.

Don’t forget to start your strategy by assessing your base offering either – our salary benchmarking tool can also offer a comprehensive understanding of salary trends, pay ranges, and candidate expectations. It’ll help you stay competitive in the wider market.

Finally, if you’re looking for help with recruiting new team members, SmartMatch can cut down on cost per hire, while managing the onboarding journey. It’s the future of hiring, and it’s available now. Try Smartmatch today.

Disclaimer: The information in this guide is current as at 13 September 2024, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this guide are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and to seek professional advice before making any decisions or relying on the information in this guide.