Top 10 performance bonus practices for small businesses

One of my favorite blogs for small businesses, Winning Workplaces,  just recently shared the top 10 practices used by their top 40 finalist companies for 2010 when it comes to structuring and administering performance bonuses.  Because it’s important to share best practices of other businesses, some of these may be something worth considering for your own company.  They are as follows:

1. Managers receive 1% of the value of sales they generate and manage.  Non-management employees are eligible for quarterly performance bonuses based on the company’s core values.
2. Performance bonuses are a fixed percent of the employee’s salary.  Employees also have an additional bonus linked to achieving team goals.  The management team also receives profit sharing, a percentage of the company’s profit.
3. Distribution of bonuses on a semi-annual basis.  Bonuses are based on 2 components:  company financial performance and individual performance.  “On-the-spot” bonuses are randomly distributed to employees for work that goes above and beyond the call of duty.
4. Every employee is eligible for an Employee Performance Standard bonus which pays out at 10% of an employee’s annual wage at the “very good” performance ranking and 15% of annual wage for “outstanding” performance based upon measurable criteria.  If the company’s profit performance is over budget, then the employee’s percentage is increased by the same % that the company’s performance is over budget.
5. Distribution of an annual bonus that represents a minimum of 20% of the company’s profits.  Half of this bonus is distributed mechanically, based on tenure with the company.  The other half is distributed by the executive team based on performance.
6. Stock bonus:  awarded at the discretion of management to selected employees who live the company purpose and core values, drive outstanding success through their leadership or entrepreneurial efforts, and have a commitment to long-term ownership of company stock.
7. Board of Directors determines annual profit sharing and number of stock shares to be issued to each employee.  Amount is the same for each eligible employee with 1+ year of service, regardless of position or salary.
8. Individual pay raises are decided at the lowest level possible (supervisor).  This is done by increasing the total labor budget for a department and allowing the supervisor to distribute this money in any justifiable way to reward prior-year accomplishments.  Detailed feedback and evaluations are regularly prepared so that no aspect of the employee’s evaluation or corresponding pay raise is a surprise.
9. For Business Development positions, performance bonuses are treated as sales commissions.  Bonuses are based on contribution, job level and the company’s financial results.
10. All full-time employees participate in a quarterly bonus program.  Everyone, from hourly workers to the CEO, works toward the same revenue target.  Bonus payouts begin as soon as 80% of the target is reached.  There is no upper limit to the bonus.  Results are discussed at all-hands meetings that are led by the CEO.

90%, or 36 of the top 40 finalists utilize some kind of performance bonus program.

To view the actual Winning Workplaces blog posting, click here.

Tagged as: performance bonus, performance bonus practices, performance bonus programs, performance bonuses, quarterly performance bonuses