Performance BonusesLike merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period. In some cases the bonus is a one-time reward. Bonuses may also be linked to objective performance measures, rather than subjective ratings. In a recent survey, the most common size of bonuses was in the range of $2,500–$5,000 per year for non management employees; bonuses paid to managers typically exceeded $5,000 per year. Bonuses for individual performance can be extremely effective and give the organization great flexibility in deciding what kinds of behavior to reward. In many cases, employees receive bonuses for meeting such routine targets as sales or production numbers. Airlines can reward good customer service with bonuses for meeting goals for on-time performance, and trucking firms can reward safe practices with bonuses for accident-free driving. Companies can award bonuses for learning, innovation, or any other behavior they associate with success. Savant Capital Management wanted its financial advisers to take more responsibility for bringing in new clients and helping to grow a firm that will remain strong after its founders retire. So the Rockford, Illinois, financial planning firm shifted part of advisers’ pay from salary to a potentially larger set of bonuses.Each adviser may earn a bonus based on a percentage of revenue from each of his or her clients and additional bonuses for each new client brought in. Besides these individual bonuses, Savant pays bonuses linked to the firm’s overall achievement of goals for profit, revenues, and new assets (clients’ investments).All this flexibility makes it essential to be sure bonuses are tied to behavior that makes a difference to the organization’s overall performance. Also, employees have to have some control over whether they can meet the bonus requirements. Adding to the flexibility of annual or more frequent bonuses, organizations also may motivate employees with one-time bonuses. For example, when one organization acquires another, it usually wants to retain certain valuable employees in the organization it is buying. Therefore, it is common for organizations involved in an acquisition to pay retention bonuses—one-time incentives paid in exchange for remaining with the company—to top managers, engineers, top-performing salespeople, and information technology specialists. The U.S. Air Force addressed the difficulty of meeting the need for drone pilots by offering a retention bonus of $25,000; the more pilots who sign up for another tour, the fewer the Air Force needs to recruit. When Office Depot merged with OfficeMax, it paid top executives bonuses of up to $500,000 a year over a three-year period so they would stay through the transition.18
Performance Bonuses<br>Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period. In some cases the bonus is a one-time reward. Bonuses may also be linked to objective performance measures, rather than subjective ratings. In a recent survey, the most common size of bonuses was in the range of $2,500–$5,000 per year for non management employees; bonuses paid to managers typically exceeded $5,000 per year. Bonuses for individual performance can be extremely effective and give the organization great flexibility in deciding what kinds of behavior to reward. In many cases, employees receive bonuses for meeting such routine targets as sales or production numbers. Airlines can reward good customer service with bonuses for meeting goals for on-time performance, and trucking firms can reward safe practices with bonuses for accident-free driving. Companies can award bonuses for learning, innovation, or any other behavior they associate with success. Savant Capital Management wanted its financial advisers to take more responsibility for bringing in new clients and helping to grow a firm that will remain strong after its founders retire. So the Rockford, Illinois, financial planning firm shifted part of advisers’ pay from salary to a potentially larger set of bonuses.<br><br>Each adviser may earn a bonus based on a percentage of revenue from each of his or her clients and additional bonuses for each new client brought in. Besides these individual bonuses, Savant pays bonuses linked to the firm’s overall achievement of goals for profit, revenues, and new assets (clients’ investments).<br><br>All this flexibility makes it essential to be sure bonuses are tied to behavior that makes a difference to the organization’s overall performance. Also, employees have to have some control over whether they can meet the bonus requirements. Adding to the flexibility of annual or more frequent bonuses, organizations also may motivate employees with one-time bonuses. For example, when one organization acquires another, it usually wants to retain certain valuable employees in the organization it is buying. Therefore, it is common for organizations involved in an acquisition to pay retention bonuses—one-time incentives paid in exchange for remaining with the company—to top managers, engineers, top-performing salespeople, and information technology specialists. The U.S. Air Force addressed the difficulty of meeting the need for drone pilots by offering a retention bonus of $25,000; the more pilots who sign up for another tour, the fewer the Air Force needs to recruit. When Office Depot merged with OfficeMax, it paid top executives bonuses of up to $500,000 a year over a three-year period so they would stay through the transition.18
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