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9 Bonus Structure Examples Employees and Employers Love

By:
Ryan Shank

Bonus structures aren't just about handing out extra cash, they're strategic tools used to align employee efforts with company goals. But with so many options out there, choosing the right one can feel overwhelming.

This guide delves into nine real-world bonus structure examples that have been proven to win over employees and employers alike. Plus, we'll equip you with the knowledge to craft a structure that fits your unique business needs.

Ready to unlock the power of effective bonuses? Let's dive in!

9 Real World Bonus Structure Examples 

We know you've already got an idea of what employee bonus structures are meant to be. But we're here to say that not all bonus programs are structured the same.

Employee bonus structures come in various shapes and forms. They reward employees over and above their total compensation (i.e. base salary) for achieving pre-determined performance metrics set out by a company.

To make this as smooth as possible, we've gathered info on nine employee bonus plans for you. Let's take a look at these employee incentive ideas next.

1. Profit sharing bonus

  • A profit share bonus is when a company's profits are split among eligible employees, once certain criteria have been met.
  • It's calculated using a formula to incentivize employees for their hard work and efforts.
  • Dividing the "profit pie" is a win-win situation for employees and employers. Workers are financially rewarded and companies boost operational success.
  • Profit sharing bonuses are used to boost employee morale and productivity.

Learn how to calculate profit sharing bonuses on ShareWillow's website and take advantage of our free profit sharing template!

Corporations in the U.S. that utilize this type of reward program include:

  • Southwest Airlines - 10% of profit shares go to employee retirement funds and the balance is given as cash incentives.
  • Home Depot - profit distributions are rewarded to employees who have worked for a minimum of 1,000 hours (500 hours for part-time employees) in the previous fiscal year.

2. Performance bonuses

  • A performance bonus is given based on employee performance, hence the name. These bonus payments are variable payouts and are not a guarantee.
  • It's used to motivate high achievements and goal-oriented behavior, fostering a collaborative effort towards common goals. It's proven to increase job satisfaction and employee commitment and enhance job performance.
  • A performance bonus can be structured as individual or team bonuses.

Company example:

  • Hilton Hotels is an example of one American company that offers performance bonuses for "awesome work".

3. Commission bonuses

  • Earnings are tied directly to sales performances with a commission bonus program. This motivates employees and the sales team to exceed sales targets and generate bigger profits for a business.
  • Giving a percentage (say 5% or 10%) of the closing deal to workers keeps them engaged, boosting morale and fostering a company culture of appreciation.
  • A commission payout can be percent-based, a flat rate, or tiered to correlate with reaching certain milestones.
  • Commission bonuses are not limited to large organizations. They are used across multiple sectors - retail, manufacturing, and pharmaceutical - to boost a company's bottom line and motivate staff.

Types of businesses /industries that offer commission structures include:

  • Car dealerships (i.e. Ford, General Motors)
  • Travel agencies
  • Retail - Gucci sales representatives earn roughly 8% commission
  • Construction
  • Pharmaceutical - Walgreen affiliates earn a 2% commission on the sales they make

Top tip: Normal federal/state tax applies to commissions when it's combined with employees' usual wages.

4. Signing bonuses

  • Sign-on bonuses are given to employees when they first join an organization. They are given upon enrollment and are not based on performance.
  • They're used to attract top talent by offering upfront incentives and helping secure high-value hires, especially in competitive job markets.
  • It's used to attract and retain employees, fostering long-term company loyalty and commitment.

Businesses that offer sign-on bonuses:

  • Amazon offers up to $1,000 in sign-on bonuses for new employees who pack and ship online orders and an extra $100 if they have received the Covid-19 vaccine.
  • McDonald's offers hiring bonuses to new team members, with incentives ranging per franchise. One Florida branch offered $50 just for pitching up at the interview, while a North Carolina location dished out a $500 sign-on bonus.

5. Referral bonuses

  • Reward employees for bringing in top-talent candidates. Leverage your employees' network to find qualified personnel to reduce recruiting and hiring costs.
  • These bonus payments are typically paid after new hires have completed their probation period.

Establishments that use referral programs include:

  • Dropbox rewards anyone through its "refer a friend" referral program, offering free storage space in exchange for company growth.
  • The Palazzo Versace Dubai Referral Program is another example of a high-end corporation utilizing referral bonus structures.

6. Retention bonuses

  • Reward high-performing employees for staying on board with retention bonus payouts.
  • A retention bonus program for employees combats turnover rates, fosters long-term company commitment, and encourages workers to stay for the long haul.

Note: The IRS treats a retention bonus as supplementary income where a 22% tax is applied.

U.S. businesses offering retention bonuses:

  • Goldman Sachs
  • Boeing
  • Target
  • General Motors
  • Pfizer

7. Non-monetary bonus

  • Not every compensation package needs to be a cash payout. Offer unique perks like retirement plans, wellness programs, or education opportunities.
  • Recognition awards like Employee of the Month or peer-to-peer gifting cost very little to a company but pack a powerful punch for an individual's self-confidence.
  • This form of "performance bonus" caters to a diverse pool of employees, targeting individual preferences. Allow workers to choose their own compensation plan, like paid time off, flexible scheduling, or discounted gym memberships.

Companies offering a diverse incentive program include:

  • Google offers various non-financial rewards, such as tuition reimbursement, onsite wellness centers, family support, and hybrid work structures.
  • Health cover, paid time off, parental leave, and commuting benefits are what Starbucks offers its workforce.

8. Annual bonus

  • Year-end bonuses are given based on personal, team, and company performance, aligned with a company's profits.
  • These bonus structures provide a consistent reward while aligning employee efforts with business benchmarks. It fosters a collaborative, goal-oriented mindset among teams.
  • When employees feel valued and rewarded they are more likely to keep giving their best, transcending exceptional performance - and profits!

Businesses that offer annual bonuses:

  • Disney offers a one-time $1,000 cash bonus for more than 125,000 employees.
  • Northern Trust awards employees one week's base salary up to $1,000.
  • Bank of America offers a one-time $1,000 bonus for employees earning up to $150,000 per year.

9. Discretionary bonus

  • A discretionary bonus is given to staff members at the discretion of managers and business owners. This could be monetary or non-financial rewards.
  • This "spot bonus" can be based on criteria that may not be formally defined. This includes noteworthy work ethic, company values champion, or charity work advocator.
  • However, this sort of bonus plan isn't recommended as it can be seen as unfair or biased when employees don't fully understand the criteria that need to be met.

Discretion bonus examples:

  • An events company might give a discretionary bonus to workers after a successful event, such as a New Year's party, catering job, or wedding.
  • Marketing agencies can award teams a paid day off when exceeding key project milestones.
  • Construction companies can reward teams or managers for completing schemes ahead of schedule.

Now let's dive into how you can implement an attractive compensation program in your business.

How to Implement an Effective Bonus Structure in Your Organization

Figuring out how to calculate bonuses for employees and effectively implement them can be tricky.

To incentivize employees, business owners need to take a strategic approach. You need to understand what drives and motivates your employees - is it cash incentives, paid time off, or flexible hours? - and clearly define your company's objectives - do you want a higher sales volume, reduced waste, or improved customer service?

Fun fact: According to Employees Benefits, fewer employees quit their jobs when attractive performance bonuses are offered.

An employee bonus plan should not be taken lightly. It needs careful consideration and planning to implement the most effective bonus program suited to your organizational objectives.

Setting clear and achievable goals 

  • Identify clear operational objectives you want to achieve
  • Find out what motivates employees - is it paid time off, recognition, or flexible hours?
  • Align these two to find common ground. Be flexible and creative when structuring bonus programs, ensuring benchmarks keep morale high.

Ensuring transparency and fairness

  • Open, honest, and transparent communication is key to any successful employee bonus structure.
  • Ensure you explain all details, performance expectations, calculations, and timeframes to eligible employees to avoid any misunderstanding. Recap bonus plans (say once a month or quarterly), using staff members, webinars, and brochures to your advantage.
  • Use clear understandable language to mitigate misinterpretations. This reduces the risk of legal disputes and grievances.
  • Base reward programs on work ethic and performance. Do not have biased opinions based on an employee's appearance, background, religion, or gender.
  • Use innovative software platforms to accurately measure and track benchmarks vs employee input. Use reliable calculation formulas to ensure fairness among everyone.

Key Considerations When Choosing a Bonus Program for Employees

Let's explore a few factors that impact your bonus structure decisions:

Understanding employee needs and preferences

  • Conduct anonymous surveys to gain feedback on what drives and motivates your teams.
  • According to a 2023 ZipDo report:
  • 72% find flexible scheduling to be very rewarding.
  • 66% of employees would leave their current jobs for better benefits elsewhere.
  • 76% of employees want wellbeing and quality of life perks.

Aligning bonus programs with business objectives

  • While keeping employees happy is important, it shouldn't cost business performance.
  • Ensure you choose the right incentive plan that achieves business goals and satisfies workers.
  • For instance: If you want to reduce manufacturing waste, consider performance bonuses that reward teams for the most reduction.

Budget constraints and financial viability

  • Compensation plans need to align with company profits and overall financial performance. Don't make monetary promises to employees without doing your homework first.
  • Educate yourself on your business's financial health. Speak to financial advisors, accountants, and budget planning professionals.

Legal and regulatory compliance

  • Employee benefits programs are legal agreements between employer and worker and need to be treated as such.
  • Follow federal/state laws and regulations to the book - including tax and employment requirements.
  • Keep up to date with the latest compliance laws and adjust contracts as needed.
  • Maintain ethical standards, such as rewards based on work ethic, not on an employee's appearance, religion, or gender. This builds trust and ensures fairness across the board.

Evaluating and updating bonus programs

  • Be flexible when it comes to bonus systems. What you thought was a good bonus structure on paper, might not yield the desired results in practice.
  • Adapt plans to meet the ever-evolving needs of your business's growth. Adjust benchmarks, sales targets, and other criteria to align with the economic landscape.

Offer Your People an Effective Employee Bonus Structure With Our Profit Sharing Template:

If you're a business owner looking to implement an effective bonus program for employees, allow ShareWillow to streamline the process for you.

Forget traditional, complicated systems and embrace a more efficient, effective, and systematic approach to streamlining profit sharing bonuses with our free profit sharing template.

Commonly Asked Questions About Bonus Structures

What is a good bonus structure?

A good bonus structure aligns business objectives with employee interests. It effectively addresses operational challenges - like wastage and cost control - and directly ties this to financial rewards for employees.

How do you distribute bonuses to employees?

Fair bonus distribution is usually done using performance metric tracking software. Managers collect operational data and input these metrics into a monitoring system. Companies set predetermined benchmarks and use a robust calculation formula to accurately measure performances vs bonus payouts.

ABOUT THE AUTHOR

Ryan is the founder of ShareWillow. He's passionate about helping businesses create incentive plans that motivate and reward employees. He previously built and sold PhoneWagon.

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