Bonus schemes provide cash payments to employees related to organizational, team, or individual performance. There are two main types of bonus schemes: bonus-only schemes that reward past performance to encourage future performance, and bonus with contingent pay schemes that combine bonuses with consolidated pay increases. Bonus schemes aim to increase employee commitment, motivation, and engagement by rewarding good performance. They are typically designed for directors, sales staff, and senior managers since these roles have the greatest impact on company results. An effective bonus scheme must link rewards clearly to efforts, use measurable performance metrics, operate fairly and consistently, and be reasonably simple to understand.

1. Session on 12
MBA
Topic:
Bonus

2. What is Bonus?

3. CHAPTER
Bonus schemes
1.Cash bonuses are an increasingly important part of the
remuneration package.
2. the aims of bonus schemes;
3. the rationale for bonuses;
4. the different types of schemes;
5. the categories of staff taking part in bonus schemes;
6. the design of bonus schemes;
7. the introduction of a scheme.

4. BONUS SCHEMES DEFINED
Bonus schemes provide cash
payments to employees that are
related to the performance of their
organization, their team or
themselvesBonuses are often referred
to as ‘variable pay’ or ‘pay at risk’.

5. AIMS OF BONUS SCHEMES
Enable people to share in the success of the organization and
therefore increase their commitment to it.
Provide rewards related to business performance to increase
motivation, commitment and engagement.
Provide a reward that recognizes past performance or
achievements and encourages individuals and teams to perform
well in the future.
Provide a direct incentive that increases motivation and
engagement and generates higher future levels of individual
and team performance.
Ensure that pay levels are competitive and will attract and
retain good-quality people

6. TYPES OF SCHEME
Bonus only
Bonus and contingent pay

7. Bonus only
Advantages
Has to be re-earned.
Can be related to corporate or team performance as well as
individual performance, thereby increasing commitment and
enhancing teamwork.
Cash sums, as long as they are large, can have a more
immediate impact on motivation and engagement.

8. Bonus only
Disadvantages
May be perceived as subjective.
Many people may prefer the opportunity to
increase their base pay rather than rely on
potentially unpredictable bonus payments.
If incoherent, the payment will not be
pensionable.

9. Bonus and
contingent pay
Advantages
Get best of both words:
consolidated increases
and cash payments.

11. Bonus and
contingent pay
Disadvantages
Potentially complex.
The impact made by either bonuses or consolidated
payments might be dissipated, especially when the
sums available are divided into two parts.

13. CATEGORY OF STAFF COVERED
Bonus schemes based on
organizational or individual
performance are often only provided
for directors , branch staff, directors
or sales staff & possibly, senior
managers on the grounds that they
make the greatest impact on results.

15. DESIGNING A BONUS SCHEME
Criteria
be designed to meet defined objectives;
provide a clear line of sight between effort or contribution and
the reward;
result in meaningful rewards; be based on realistic, significant
and measurable key performance indicators (KPIs) for
organizational and team bonus schemes or combination plans;
be based on a well-established and effective process of
performance management for individual bonuses; operate
fairly, equitably, consistently and transparently;
be appropriate for the type of people to which it applies;

16. be reasonably easy to understand and manage, i.e. not over-
complex;
only provide for payment if a demanding threshold of
performance is achieved;
contain arrangements to restrict (cap) the maximum payment to
an acceptable sum;
so far as possible be self-financing;
provide for review at regular intervals to decide whether the
scheme needs to be amended, replaced or cancelled;
provide scope to moderate corporate bonuses by reference to
personal performance.