Bonus schemes are forms of behavioural reinforcement. They are rewards where employees are provided with a single large payment as a form of recompense for hitting an objective that was agreed upon in advance. The way a bonus scheme is set-up tends to mean that the bonus’ value is a part of whatever target is set by the company. As a result, a bonus scheme finances itself without the need for external funds.
A business can make simple or single issue performance targets, including raising sales totals. However, it is more common for performance targets to be made of a combination of various business goals. Whether the single issue or mixed performance target is created, they tend to have objective goals, such as profit targets. It is also possible that performance that is higher or lower than a given target will receive some form of recognition.
The strategy for recognition typically classifies a bonus scheme as a variable one since whatever is being offered as value might be higher or lower depending on the performance period in question.
However, it is also possible that the amount of bonus pay received can impact how a week’s pay is calculated when certain statutory benefits are taken into consideration. Finally, UK equal pay legislation also requires employees to classify bonus pay as pay that must be allotted in a fair manner.
Why a bonus scheme?
The reason bonus schemes are typically created, is to give employees motivation to reach certain objectives within a company. It is possible to create these goals at individual, group, or entire business levels. Some reasons include performance improvements, such as in sales or profits. Others include providing a greater degree of focus on important objectives, such as quality or customer service. Other examples might even include to promote change at the organisational level.
How are bonus schemes funded?
A frequent way of funding bonus schemes is through the creation of a bonus pool. This means that pool funds will either come from the higher level of performance that is a conditional element of the bonus scheme or from the cut costs that are also goals of the bonus scheme. If a bonus scheme is designed well, then, it will fund itself.
It is also possible to provide different levels of a bonus scheme as a result of performance that is either higher or lower than the objective level. The way the line that fits bonus and performance is angled is an important design decision that should be carefully considered.
It is possible to have an s curve, a regular curve, or a straight line. Each will tell employees something different about the amount of effort they should put in, and at the same time, each will require the scheme to be funded in a slightly different way.
There are also times when performance in a company by employees may be tracked in one particular business year while any bonuses and payments are paid out the following year. In these kinds of situations one commonly sees the bonus scheme accrued within the accounts of the company over the interval between the performance measurement and the payout.
What about issues of equality?
It is possible that issues of equality might come up depending on age, race, disability, gender, or similar factors. The reason for this is that the Disability Discrimination Act and the Race Relation Act make it illegal to have pay discrimination; this is part of equal pay legislation and must be followed. Information is available online about the Equal Pay Act and companies like Paydata
As a result, when designing a scheme, keep this in mind as well as the need to stay up to date with legislation that involves how part time employees are paid. A company can start by making sure fair targets are set, and then by monitoring whatever bonus payment systems are made in order to ensure equality.
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