Bonuses: you’re damned if you do, damned if you don’t. If you do offer a year-end bonus, some members of staff may feel short-changed compared to others. Meanwhile, not offering any bonus scheme at all could lead to an unhappy and unmotivated workforce.
For a bonus system to really work, your employees need to be fully engaged. We often find that the best option for our clients is a profit share bonus, rather than a revenue-based reward. What are they and how do they work?
How do profit share bonuses work?
A profit share bonus is based on overall company performance. Unlike other schemes, it’s based on net profit rather than revenue or individual accomplishments. In other words: if the business does well, everyone does well.
Businesses that use this model put a percentage of the company’s profits into a bonus pot, which is then distributed among employees at the end of the year. As the business-owner, the portion of profits that goes into the pot is entirely at your discretion, often starting at 5%.
While it can take a bit of time and money to implement, introducing a profit-based bonus scheme to your business does have its perks.
Benefits of profit share bonus schemes
While a bit of competition caused by reward-based bonuses can be healthy, it can create issues if people start to poach each other’s commissions. With profit share bonuses, you can still choose to reward individual efforts – but they’re not the be-all and end-all.
Basing bonus checks on overall company performance can also motivate people to work towards a common goal rather than personal accomplishments. That means better teamwork, improved camaraderie and increased profits for your company.
Reward consistent efforts
Yearly bonuses can incentivise employees to work towards long-term goals rather than short-term victories. By engaging in consistent efforts throughout the year rather than working in short bursts, employees will be able to focus on the bigger picture.
And if you offer profit share bonuses, there’s even more reason for your employees to put in the effort. Knowing that they’ll directly benefit from their hard work is a powerful motivator.
Protect your bottom line
While it’s important to pay people fairly, giving your employees extra compensation can set a dangerous precedent – particularly if your profits vary year on year. Not being able to afford the extra cost can lead to low morale and decreased productivity.
But one of the advantages of profit share bonuses is the flexibility it gives employers. With rewards based on net profit, you won’t have to cough up a large sum of money at the end of a tough year.
When done right, year-end bonuses can give a welcome boost to staff morale. Employees that feel appreciated are more likely to work harder and stay in the company longer. And in terms of hiring new people, an attractive remuneration package can help you attract the best talent.
However, it could easily go the other way if you’re not careful. Rolling out a bonus scheme too early could be expensive, while not communicating how bonuses will be calculated or taxed may give employees false expectations.
Being up front about the policy and your business’s financial health throughout the year will help avoid staff becoming overly reliant on the extra cash at year end.
Weighing up your options
Giving your employees a little something extra at year-end can do wonders for productivity, but it’s important to budget carefully and ensure you’re making the right choice before committing.
At Spark, we can advise you on the financial implications of different bonus schemes, and work with you to help you make the best decision for your business.
Talk to an expert today to explore your options and find out how year-end bonuses can help secure your company’s financial future.