10 Types of Bonus Programs for Employee

Businesses offer employees bonuses in different forms to keep them productive and motivated. Bonuses are additional compensation paid to employees above their basic salaries.

Bonuses can help employees perform according to their objectives and encourage them to reach their goals. Businesses can use employee bonuses to reward their top-performing employees.

Bonuses also play a huge role in employee retention and keeping the employee turnover of a business low.

There are many types of bonus programs for employees offered by businesses. Each program has its advantages and disadvantages for both companies and employees.

It is important for both the business and its employees to know the different types of bonus programs to reap maximum benefits from them.

The different types of bonus programs for employees are as follows:

1. Annual Bonuses

Annual bonuses are the most common type of bonuses provided to employees. These are given at the end of every year and are based on the employees’ basic salaries.

Sometimes these bonuses are linked to different goals or achievements that the employees must satisfy to qualify for the bonus.

These bonuses are approved after a performance appraisal of the employee is performed by the management of the business.

Annual bonuses are mostly based on a percentage decided by the management of the business at the start of every year.

These bonuses might also be given to a whole department based on the department’s achievements rather than individuals in the department.

Annual bonuses are the main indicator of the achievements of an individual employee or a department.

2. Profit-Sharing

Apart from annual bonuses, profit-sharing schemes are a common type of bonus program. These are used as alternatives to annual bonuses.

Under this bonus program, employees are given a pre-determined percentage of share in the profits of a business.

These bonuses may range from as low as 2% of the business’s profits up to 20% of its profits. These bonuses depend on the profits of the business.

This program is adopted by businesses that believe the business’s employees play a significant part in the profit generation of the business.

While profit sharing is commonly applied to a business as a whole, it can also be applied to each department if a profit center can be established.

However, applying it departmentally can prove unfair for departments with lower profits or departments in which the profits depend on the performance of other departments.

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3. Signing Fee or Hiring Bonuses

Signing fees or hiring bonuses are given to potential candidates to attract them to sign up for a business.

For example, sportsmen are paid signing bonuses to encourage them to change their team and join a new team.

Businesses can also use signing fees to attract candidates, although the salaries being offered to them are low. It can encourage experts in a field to join the business.

While hiring bonuses can benefit businesses and employees, these are short-term.

Businesses still need to offer other types of bonuses to keep employees motivated and productive in the long run.

Businesses can also spread hiring bonuses, for example, offering half the bonus when an employee joins the business and the other half after a year of service.

This can also prevent employees from joining the business for the bonus and leaving prematurely.

4. Retention Bonuses

Retention bonuses are, in a sense, the opposite of hiring bonuses. These are also known as loyalty bonuses. Companies can use retention bonuses to retain their current employees.

This can be particularly useful if the employees to whom the bonus is being offered are experienced, and there is a chance that competitors can poach them away from the business.

Retention bonuses can be given quarterly, semi-annually, or annually, although annual retention bonuses are the most common.

Retention bonuses are long-term bonuses that need to consider the demands of both the business and the employees.

Retention bonuses should be adjustable according to the experience level and the employee’s importance to the bonuses being offered.

Although retention bonuses help a business retain its employees, they are not an indicator of employee performance.

5. Spot Bonuses

As the name suggests, Spots bonuses are bonuses given to employees on the spot as a reward for their performance.

These are given to employees for any behavior the business management deem deserves special recognition.

Spot bonuses are different for the type of business giving them. These bonuses may range in thousands of dollars for bigger businesses, while for small businesses, they may be as low as $25.

Spot bonuses can be a great way for businesses to encourage desired behavior from employees.

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While spot bonuses are easy to give out, businesses need to establish limits for annual spot bonuses.

These limits can be set in the form of budgets. Businesses must also ensure that these bonuses are only given for standout behaviors to set examples for standard behavior across the business.

6. Referral Bonuses

Referral bonuses are given to current employees for referring potential candidates for a hard-to-fill job.

Referral bonuses are common in markets where experienced employees are hard to find, and businesses rely on current employees to refer friends or acquaintances that fit the job description of the vacancy.

These bonuses can help the business find candidates for jobs easily.

Businesses can also save costs of advertising the job by asking current employees to refer candidates.

However, some jurisdictions may require the job to be advertised for open competition first. The amount of referral bonuses given to employees depends on the vacant position’s annual salary and status.

These bonuses may also depend on the candidate’s performance in the job and may be given after a year once the new employee’s performance is appraised.

7. Holiday Bonuses

Holiday bonuses are given to employees around major holidays such as Christmas. These bonuses are distributed among all the business employees regardless of their performance or achievements.

These bonuses may either be paid in cash or noncash gifts. Generally, employees are paid an extra month’s salary, also known as the “13th-month salary,” as holiday bonuses.

Holiday bonuses can be a great morale boost for employees around the holidays.

There are no set rules for holiday bonuses. While some businesses may choose not to give these bonuses, they can be a great source of extra motivation around the holidays and after when the work piles up.

Holiday bonuses can be used to create a sense of belonging among employees.

8. Noncash bonuses

Businesses may also give their employees bonuses in other forms than cash bonuses.

While these bonuses may not benefit employees financially, they can be a great morale boost for employees looking for extra motivation.

Noncash bonus programs can be paired with other cash-based bonus programs to motivate a business’s employees to the maximum.

For example, some businesses give “Salesman of the month” or “Employee of the month” awards to employees who have performed in sales or other sectors.

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Some businesses give their employees a cake or chocolates on their birthdays.

9. Project bonuses

Project bonuses, also known as milestone bonuses, are given to employees when certain project deadlines are met.

These may also refer to bonuses that are given after the successful completion of projects. Project bonuses are used to encourage employees to meet project deadlines.

While not as popular as other types of bonuses, project bonuses are common in industries where work is taken as or divided into projects, such as the information technology industry.

Although project bonuses are a great way of ensuring deadlines are met, businesses must ensure the quality of work is not affected. Some businesses may give project bonuses based on the success of the project.

However, this may result in more focus on the work quality rather than the work speed.

Therefore, businesses must ensure a proper balance by basing the bonus on both the quality and the speed of the project.

10. Commission

Commission bonus plans are commonly used for the sales department of a business.

Under this program, salesmen are given a commission, or a percentage, for every unit of product they sell.

The commission is pre-determined by the management of the business at the start of every year.

Businesses may also increase commission percentages as the number of units sold increases.

There are many different types of commission structures that a business may use.

For example, a business may give employees a low basic salary and a higher commission percentage to complement the basic salary.

Alternatively, businesses may give salesmen commissions based on the territory or area they are working in.

Conclusion

Businesses can use bonus programs to encourage their employees and keep them motivated. There are many different types of bonus programs that a business can use.

For example, businesses can pay fixed annual bonuses or allow their employees a share of their profits.

Businesses can attract candidates for a job or keep existing employees by offering them hiring bonuses or loyalty bonuses.

Businesses can also use other types of bonuses, such as spot bonuses, referral bonuses, holiday bonuses, noncash bonuses, project bonuses, or commission structures.