What is a performance-based bonus?

A performance-based bonus is an extra compensation granted to an employee as a reward for reaching pre-established goals and benchmarks.

Employers often reward employees with performance bonuses after evaluating outstanding projects or high-quality work performances.

Why should HR leaders care about performance bonuses?

A well-designed performance bonus system based on fair criteria can stimulate employees to deliver quality work, reach set targets, and maintain motivation and productivity.

What can HR leaders do to ensure effective implementation of performance bonuses?

HR leaders can lead a collaboration between managers and employees to establish performance bonus criteria that effectively motivate employees and aligns with the company budget and goals. HR leaders can incorporate these steps to create a dynamic performance bonus system:

  • Define criteria. HR leaders should establish the criteria they’ll be using to assess employees for performance bonuses, and ensure that managers and employees understand it. Explaining the criteria to both provides each with the necessary information to do their jobs to the best of their ability. HR can also implement a performance metric-system to maximize employee potential and ensure objectivity and fairness.
  • Train managers to coach employees. According to Gallup’s 2016 research, Re-engineering of Performance Management, “Only 2 in 10 employees strongly agree that their performance is managed in a way which motivates them to do outstanding work.” Because managers play such a vital role in employee engagement, educating them to become effective coaches can directly enhance employee work performance and in-turn advance the company.
  • Invite employees to take part in target-setting.  HR leaders can invite employees to help establish attainable performance bonus goals. There is a higher probability that employees will better grasp the tasks ahead of them and have the motivation to accomplish these tasks if they participate in the goal-setting process.
  •  Offer performance bonuses consistently. Performance bonuses should be granted according to a consistent timeline. This way, employees can plan accordingly to meet deadlines and increase their chances of qualifying for a performance bonus.
  • Align performance bonus goals with company goals. HR leaders can empower employees by integrating goals that promote both individual and company success. This allows employees to feel more engaged, knowing that their work holds meaning and importance.

How can performance bonuses improve company culture?

A performance bonus system that rewards employees for their achievements and measures work performance fairly and accurately, imparts a sense of accomplishment to employees. They can experience professional growth, satisfaction from contributing toward the overall success of their company, and are more likely to bring positive energy and a good attitude to the company culture.