November 27, 2014

3 Different Types of Bonus Programs for Your Employees

types of bonus programs

Bonus programs are on the rise, a survey by WorldatWork reports. All types of bonus programs – including referral, spot and signing – have risen from 2010 (the last time the survey was conducted). Signing bonuses hit an all-time high of 74 percent, while spot bonuses were used by 60 percent of companies—more than in 2010, 2008 or 2005.

WorldatWork says the trend is due to a growing need on the part of companies to “ensure they have the talent necessary to grow their businesses.” But while the survey focused mostly on large companies, the effects of bonuses will trickle down to the small companies that have to compete with them for staff.

How to Implement a Successful Bonus Program

Spot Bonuses

As the name suggests, spot bonuses are given on the spot to reward desirable behavior. In the WorldatWork survey, spot bonuses were frequently given for:

  • Project completion (72 percent)
  • Going above and beyond (85 percent)
  • Special recognition (90 percent)

At big companies, spot bonuses can be several thousand dollars. But for small businesses, you’ll want to keep them reasonable – maybe $25 and up will work.

To Create a Motivating Spot Bonus Program:

Create different levels of spot bonuses. You might give out very small rewards, like a $25 gift card, for being the most energetic person in the company trade show booth, on up to $1,000 or more for leading a complex project to completion.

Set a budget. Giving out spot bonuses could quickly eat up capital if you don’t set a limit. Create an annual budget for spot bonuses and don’t feel like you have to use it all if you don’t see deserving employees.

Make it count. Give spot bonuses for truly exceptional behavior, not just for doing the job.

Make it a surprise. If spot bonuses become rote—employees know every week two employees get one—they lose their power to motivate. Keep employees guessing and give spot bonuses irregularly.

Publicize it. Part of the reward of a spot bonus is getting singled out in front of your teammates for your work. So make sure you award spot bonuses in front of the rest of the staff. You can also publicize it by sending out a company-wide email or making an announcement.

Referral Bonuses

Referral bonuses are offered to employees who refer job candidates who get hired and complete a probationary period with your company. The theory is that birds of a feather flock together and, if someone is referred by a good employee, there’s a strong chance they’re likely to be a good worker themselves.

To Create a Motivating Referral Bonus Program:

Develop a policy. Do you want to offer referral bonuses for every job, or only for certain positions? Do you want to have an ongoing referral program, or just alert employees at specific times you’re looking to hire and ask for referrals then?

Determine how you’ll handle payouts. Some companies pay out part of the referral when the employee is hired and the rest after they complete a probationary period of three months or six months. Others give the entire bonus at the completion of the probationary period. Either way, make sure your policy is in writing.

Consider offering higher referral bonuses for:

  • Referring candidates who increase staff diversity.
  • Referring candidates who turn out to be high performers.
  • Referring candidates for hard-to-fill jobs or with unique skills.

Depending on the difficulty you’re having finding candidates, you could even offer a very small referral bonus (like $25) for referring people who are worth calling in to interview, but don’t get the job in the end.

Signing Bonuses

Although less likely to be used by small businesses, signing bonuses motivate greater effort from new hires and generate more positive feelings toward their new employers, says a study by Jungwoon Choi at the Joseph M. Katz Graduate School of Business.

Signing Bonuses Can Be Useful For You If:

  • They are standard in your industry. For instance, signing bonuses are common with IT employees.
  • You need to attract a candidate with hard-to-find skills.
  • You need to motivate a desirable candidate to move from another state.

For small businesses on a budget, a signing bonus can enable you to land desirable employees at lower starting salaries. Of course, signing bonuses can also backfire if candidates use them to job-hop.

To prevent this, it’s a good idea to stagger your signing bonus. You might pay half of the bonus at signing, then one-quarter after the employee has worked for six months and the rest at the end of the year. Some companies also institute “clawback” provisions where employees who quit a job before a year is up must return a percentage of the signing bonus.

However, don’t expect to rely on signing bonuses as your sole attraction and retention tactic. You need a comprehensive plan of employee development to keep these desirable workers motivated and loyal beyond the first year.

Thumbs Up Photo via Shutterstock

9 Comments ▼

Rieva Lesonsky


Rieva Lesonsky Rieva Lesonsky is a staff writer for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Follow her on Google+ and visit her blog, SmallBizDaily, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

9 Reactions

  1. In the movie “Finding Forrester” the title character gives the young protagonist this advice regarding the girls he’s interested in – “An unexpected gift at an unexpected time.” I feel like you get an disproportionate benefit from bonuses that fit this criteria.

  2. This will definitely boost your employees’ morale. With a higher morale, you’ll get higher productivity from them which will be beneficial for your business.

  3. Rieva,

    When I was an employee, I enjoyed getting bonuses. They were mostly sales-related, and did serve as an incentive to sell more.

    Thanks for your informative article.

    The Franchise King®

  4. it’s surprising more employers don’t realize the value of “rewards” on employee productivity.

  5. No need to take this on yourself! There are Incentive Professionals waiting to help you properly structure a program, pick the appropriate reward and recognition vehicle for your audience and help you manage the process. Hire a professional!

  6. I find it interesting that the incentives mentioned as examples seem to be all monetary. While cash is a decent motivator it carries with it the potential to be forgotten once it is put in the wallet. Some call it the ‘Beer and Toilet paper’ effect of cash and gift cards. The cash used becomes more like regular pay (subject to taxes as well) and forgotten once it is used.

    A well thought out merchandise award will offer far more value for the same dollars. Even a small gift will be remembered often. A business card holder? I have one that was a gift and that carries a brand name and I remember the circumstances of receiving it as a token of thanks for a job well done – 10 years later!

  7. I did not see any value in this posting. All of the bonus programs mentioned are standard. I was hoping for some new information.

  8. At IncentiveAmerica, our Spot Awards program allows managers to reward employees “on the spot” or through nominations which are approved by a nominations committee. The employees not only receive the award points online which can be redeemed for brand name merchandise in a catalog, but they also receive a nice personalized note (online) from the manager, thanking them for going above & beyond. The feedback we have received is that the employees appreciate both the gift and the note, as they both indicate that their extra effort is recognized and valued by the organization.

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