Many companies give performance-based bonuses to individuals or teams based on specific achievements and milestones. These bonuses come in addition to the employee’s base salary or hourly wage as an incentive to encourage greater productivity or accomplishment.
Performance-based bonuses can encourage employees to reach new levels of performance to make the company more effective and profitable. This article will explain performance-based bonuses in greater detail while answering questions like when to offer performance-based bonuses and what types exist.
What are performance-based bonuses?
A performance-based bonus is any compensation over and above a team member’s regular salary. Standards for performance-based bonuses are usually established and communicated to employees in advance so they know what criteria they must meet to qualify. Performance evaluation and performance review processes are often integral to determining bonus eligibility.
Sometimes, the entire team learns when an individual employee receives a performance-based bonus to honor high individual performance and encourage other employees to follow their example. This can foster a positive work environment and promote teamwork.
One of the most commonly asked questions about performance-based bonuses among human resources (HR) teams is how to calculate the ideal bonus amount.
How you structure bonuses will depend on your corporate structure and solvency, but they should be tiered to reflect performance. Annual bonuses often range between 0.5% and 7.5% of an employee’s annual salary, but may be as high as 15%. The amount may depend on the employee’s overall experience and annual performance.
Performance-based bonus plans are offered in different forms and at various times. Some common examples of performance-based bonuses include:
- Cash bonus. Employees may receive a one-time financial reward for meeting (or exceeding) specific company performance metrics.
- Stock options. Occasionally, companies provide stock options for employees to increase their stake or ownership in the organization as they build its value through their performance.
- Profit-sharing bonus. As employees bring more money into the company, the company may compensate the employee by allowing them to hold onto a greater amount of what they produce.
- Salary increases. Top performers who exceed performance expectations may receive a salary raise or better benefits as a reward for their contributions.
Performance-based bonuses are often monetary rewards, but they can take many forms. In addition to offering cash bonuses, consider how nonfinancial performance-based bonuses work to motivate employees.
- Gift cards. Employees might receive gift cards for hotels, spas, or restaurants to honor their hard work. The benefit of these bonuses is that employees have to spend money on taking care of themselves rather than doing something more practical with a cash-based incentive.
- Wellness benefits. Performance-based bonuses in this category could include free or discounted gym memberships, specific work hours designated for recreation or physical activity, and the opportunity to have occasional days off for mental health.
- Professional development. Some companies offer additional professional development opportunities to allow their top talent to expand their knowledge and develop new skills.
- Time off. Employees may receive extra vacation or personal days as a reward for their achievements.
- Special assignments. In certain situations, a performance-based incentive plan may include the opportunity to take on new opportunities or tasks.
- Flexibility. Once employees earn their supervisors’ trust through their ongoing contributions, they may gain the discretionary freedom to work from home or choose their own hours.
When to use a performance-based bonus
Performance-based bonuses are common when employee motivation or drive directly correlates with the company’s profitability. Many sales-based positions include additional compensation based on individual contributions. The same is true for wealth management and customer service professionals.
Performance-based bonuses are similar to incentive-based bonuses, but the application of performance-based bonuses can be more wide-ranging. Incentive-based bonuses are usually tied to the achievement of a predetermined measurable outcome. Since performance-based bonuses connect more with individual and team production and execution, they might be more widely applicable.
If you’re considering performance-based bonus plans but unsure when to use them, consider these situations:
- Meeting (or exceeding) sales targets. One of the most common types of performance-based bonuses, many companies compensate employees who bring in more money for the company.
- Finishing projects before deadlines. Companies can validate employees for efficiency and productivity by rewarding employees who finish their work ahead of schedule.
- Receiving positive customer reviews. Customer satisfaction increases the likelihood of retention and future referrals. Organizations may incentivize employees who command positive client attention with a one-time cash payout to encourage these potential scenarios.
- Exceeding quality standards. You may have an employee with close attention to detail who regularly spots potential issues with new products. You can honor this employee and encourage continued contributions by giving them a bonus.
- Contributing new ideas (or creating new products). Many employers have a program to reward employees who creatively contribute to developing new products or offerings.
- Exemplifying effective leadership. Every company needs effective leadership at all levels of the organization. When employees demonstrate leadership in action (or take steps to improve their leadership skills or capabilities), you can encourage and honor their development with a bonus.
Some circumstances aren’t appropriate for performance-based bonuses. When health and safety are concerned, for example, many facilities focus on the numbers and post how many days they’ve been accident free. But rewarding low rates of incidents can lead to under-reporting—no one wants to be the reason everyone in the facility lost a bonus.
When developing your incentive plan, be sure to consider when you should reward results, and when you should reward the behaviors that lead to results.
Performance bonus examples
Performance-based bonuses exist in several forms. Some are monetary, but many involve other incentives. Each team is unique, and may respond differently to different types of bonuses. Think about specific team members as you continue learning about the different bonus types.
Commission-based bonus
Commission-based bonuses are customary when employees bring in money for the organization. Employees who bring in a large lump sum for the company often receive a commission-based bonus. It’s usually a win-win for the worker and the organization.
Some companies offer commission-based bonuses when employees top a certain threshold during a defined period (such as a month or year). Other organizations compensate employees for specific sales that exceed a certain amount.
In some professions, commission-based payouts are the employee’s primary compensation method. They may have a small base salary and receive most of their income from individual sales. The amount varies between organizations and industries, with 20% to 30% being a typical range.
Spot bonus
Spot bonuses are more spontaneous than other types of bonuses. You may have an employee who goes above and beyond to reach company goals or further their level of impact or performance. In that case, you could give them a spot bonus to honor their recent achievements and encourage similar employee engagement among your team.
Imagine that you’re leading a marketing team as they prepare to launch a new project. The work has been more demanding than expected, and all employees feel pressure from the upcoming launch. One particular employee is staying late, coming in on weekends, and leading the charge toward meeting the deadline and producing quality work.
Once the project launches, you could offer this employee a discretionary bonus, such as tickets to a local professional sporting event or an overnight stay at a nearby luxurious hotel to honor and reward their exceptional performance.
Fringe benefit bonus
Fringe bonuses could include free lunches, paid gym memberships, or tuition assistance for employees who meet specific criteria or accomplish certain goals. You could institute a plan where employees who refer a new client to your organization receive a $50 gift card to the restaurant of their choice.
Some supervisors also acknowledge when employees willing to go the extra mile receive excellent customer reviews.
Experience bonus
Some companies offer employees a retention bonus once they reach a particular milestone. This landmark could be a certain number of years in their role or a new achievement, such as earning a new certification or reaching a performance record.
For example, you may reward a salesperson with an extra three paid vacation days or a weekend getaway paid for by the company if they exceed their sales numbers from the year prior.
How to implement a performance-based bonus program
Instituting performance-based bonuses in your organization is easy when you follow the steps below. Not only will you know what you must do to put the program in place, but you’ll also ensure you’re moving forward in a way that benefits your company and helps employees reach new goals and standards.
- Determine performance goals and objectives.
- Consider bonus programs in your industry.
- Determine the best type of performance-based bonus.
- Accurately track employee performance.
- Reward employees for a job well done.
1. Determine performance goals and objectives
Start by thinking about your employees’ current performance. Identify areas where improvement and growth could help take your team’s performance to the next level. Determine if there’s an apparent deficiency or limitation that your team could intentionally work to improve.
From there, consider what specific goals or standards you’d like your team to reach. Your target should represent a degree of manageable difficulty for your team. You don’t want the goal to be so easy that it doesn’t represent real progress for your organization. You also don’t want your employees to get bored and lose interest.
At the same time, the goal should be manageable for your employees. They’ll become discouraged if they don’t feel like they can reach the standards you’ve set. Make every effort to choose a goal that pushes your employees to perform without stunting their growth or progress.
2. Consider bonus programs in your industry
You don’t have to reinvent the wheel when creating a program for performance-based bonuses. Consider what other companies in your industry are doing to determine the most useful or effective tactics for your organization.
While this information can be helpful, you don’t have to copy what your competitors are doing. Feel free to put a creative spin on others’ ideas to make them more relevant or applicable to your scenario. You know your team as well as anyone, which qualifies you to make choices about what will best motivate your employees.
3. Determine the best type of performance-based bonus
With an understanding of the different performance-based bonuses and which are popular in your industry, you can select the bonus structure that will best motivate your team.
Consider using a mix of monetary and nonmonetary incentives in your performance-based bonus system, and scale the incentives with the achievement. Some employees find the potential to increase their earnings more motivating, while others might be more driven to earn increased flexibility or additional career advancement opportunities.
You can—and likely should—tailor the bonus to the role as well as the achievement. However, you’ll also want to be fair to everyone. Avoid creating a bonus structure that will incentivize some roles but not others, or that will penalize people who aren’t associated with a department.
Where the operations department might have a bonus structured closely with a facility’s output, HR could have metrics designed around recruitment, retention, and compliance, for example.
Consider soliciting feedback from team members before formally establishing a performance-based bonus plan. This allows you to gauge how team members will receive the plan and what incentives may have the greatest impact. Employees will also feel more ownership when contributing to the decision-making process.
4. Accurately track employee performance
Track employee performance so you know when employees meet performance goals. You’ll know when to reward employees and be able to do so promptly so that employees feel recognized for their performance.
Consider applying the SMART goal framework to create specific, time-bound, and measurable goals. Employees will have an easier time pursuing goals if they’re clear about what you expect from them. By setting specific and measurable goals in advance, you’ll have a better opportunity to define success, as well as to progress and incorporate this vision into the goals.
5. Reward employees for a job well done
Employees who receive performance-based bonuses will feel like their contributions are appreciated and valued. This recognition can encourage continued high performance and job satisfaction—both for the employee receiving the bonus and other team members who take notice.
Periodically revisit employee goals to ensure they’re realistically attainable and appropriately challenging. If employees meet goals regularly, raise the bar. If the goal seems too challenging, consider if the goal is too difficult.
This article originally appeared on Upwork.com and was syndicated by MediaFeed.org.
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Skill vs Talent: Do You Really Know the Difference? (& How Your Company Can Foster Both in Its Employees)
The definition of talent is a natural ability someone is born with, like a perfect pitch in music or a creative mind. Skill is an ability that comes from practice, something you can learn like computer coding or gardening. The key difference between them is that talent is God-given, and skill is learned.
Definitions, though, can trick us into thinking that complicated subjects are simple.
Don’t be fooled—there’s more to know about talent vs. skill. This article explores what these two things are and how to compare them, and gives examples. We’ll also discuss ways to develop talents and skills and how to use them in your career. (Learn about The Impact of AI on The Job Market: Key Insights.)
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Skill is the ability to complete a set of tasks well. Specific skills can be developed through hard work, training, and deliberate practice. For example:
- Someone wanting a management position can take classes or training to develop competency in the skills they need to manage people and resources, like conflict resolution, strategic thinking, time management, delegation, and budgeting.
- Computer programming experts learn their skills through coursework and by completing certifications.
- Athletes (even naturally talented athletes) perfect their craft often through a lifetime of high-level practice and performance.
Hard skills like the ability to create or use software or other tools make up the majority of what many organizations focus on. These competencies are often critical to the core functions of the person’s role in the organization, and the organization in general.
However, soft skills are no less important. Soft skills are the interpersonal traits that allow a person to work well in a team. The ability to communicate well, excel in decision-making, and collaborate are all examples of soft skills.
Gaining and using soft skills can be more emotionally fraught than hard skills—which makes them in some ways harder to learn. But they can be learned and practiced and they offer adaptability in most professional settings. Taking seminars and classes, or working with mentors and coaches, to develop active listening, conflict resolution, and relationship building are good places to start.
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Talent is the natural aptitude to gain a specific skill or set of skills. Unlike skill, talent is a set of innate abilities, and is considered unteachable—but even talented people have to practice their skills!
Yo-Yo Ma once said in an interview with Strings Magazine that even he needs to practice after decades of playing. He said that if string musicians don’t play for a while, “We actually start from ground zero.”
People with an inborn talent for a certain skill often learn that skill more quickly and enjoy continuing learning long after their peers have given up. For example:
- Someone with a natural aptitude for artistic talents might be able to master the use of products, colors, and lines for a role such as graphic design whereas it would take another person more time and effort to master.
- Musicians are often described as talented but are often driven to practice their musical instruments or voice for hours on end. Some undefined part of their psyche attracts them to the music, and that they enjoy practicing allows them to perfect their craft.
- People with a gift for numbers will often enjoy solving physics-related puzzles. They might not only enjoy the beauty of water dripping into a puddle, but will also ask themselves about the velocity of the waves that ripple out, and be drawn to practice their talent in places that other people don’t.
Talented people—in the arts, sciences, athletics, or anywhere else—often learn skills associated with their talent quickly, and feel drawn to their interests in a way that allows them to practice at a high level.
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This chart overviews the key differences between skill and talent, including their definitions, how they’re developed, and examples.
Upwork
Now that we know the differences between them, let’s look at a list of talents and skills.
Examples of skills
You can develop any number of skills to serve you in life and your career. Just a few examples are:
- Someone who’s left-eye dominant but right-handed, learning to shoot a basketball well.
- Someone who grew up learning to be independent, later learning to work in a team setting.
- Someone who tends to think in black and white, learning to listen to and value the viewpoints of others.
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Like with skills, there are too many talents to list in one place. Below are just a few examples of God-gifted talent:
- Someone who has never taken an art class finds they can practice sculpting for hours and develop a knack for it.
- A business professional with a talent for launching new businesses who still practices developing basic skills like how they communicate with employees.
- Someone who, from a very young age, has a natural affinity for certain subjects, for example physics, and can understand the concepts at a near-adult level.
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People who don’t think of themselves as talented (even though they may be!) can overcome most of their deficits through quality practice. And even talented people can improve their technical skills! The extra effort it takes to improve is often worth it. We provide some ways to develop both.
1. Find a coach or mentor
First, expose yourself to the environment and a group of people that can help you grow your passion. Exposure, coaching, and the ability to share your experiences are key.
If you’re looking for someone to coach you, identify someone you admire or has common goals and ask for a meeting. Don’t be intimidated by the prospect of sending that initial email—they’ve likely been in your shoes. Ask for something quick, like coffee, that’s low stakes for them and an opportunity to see if you connect with them.
In that initial meeting, keep the conversation two-way—you want to try and get to know them. You’ll have an opportunity to see a little of their journey, and they’ll feel more invested in your relationship.
From there, maintain the relationship. Keep them updated when you follow their recommendations, offer to help them when opportunities arise, and continue to express your thanks for their time and guidance. Be open to different mediums of skill and talent development as your mentor suggests.
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Practice helps build muscle memory, improve hand-eye coordination, increase focus and concentration, and develop the confidence needed to perform at our best.
Whether you want to write a novel or learn how to budget, the path is the same. When you regularly use a skill or talent, the stronger and more refined the special ability will get.
Ultimately, developing skills and talents through practice is about improving our abilities and enjoying the journey and the sense of fulfillment that comes with it.
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You also need to set goals that challenge you. A good place to start is to follow the SMART goals method.
- Specific. Drill down. For example, if you want to run a marathon, start by running a few miles.
- Measurable. Track and confirm when you’ve reached your goal. For example, instead of saying you want to increase new customer acquisition, try saying you want to increase customer acquisition by 10%.
- Attainable. Returning to our marathon example, you wouldn’t walk out the door on day one to run 26 miles. Set a goal you can achieve. Perhaps it’s running that first mile without stopping. Make sure your goal isn’t too much of a stretch so you don’t set yourself up for disappointment.
- Relevant. Your goals should help you take steps to get where you want to be in your career and life.
- Time-bound. Give yourself the benefit of a ticking clock to make progress. If you don’t, you may end up overwhelmed or put it off entirely.
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Developing skills and talents requires continuous education because the world is constantly evolving, your competition is always improving, and there’s always something to learn.
Continuous education helps us stay updated on the latest trends, technologies, and practices, allowing us to remain competitive and relevant.
This might mean returning to school for additional certifications or degrees, but it doesn’t have to. You can take advantage of online resources to continue to hone your abilities.
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Leveraging your skills and natural talents in the workplace can benefit you and your organization. You improve your own impact, self-esteem, and career prospects—and your organization is stronger for your contribution.
But how do you go about leveraging your strengths? There are three main steps.
1. Know what your strengths are
Make a list of what you bring to the table, specifically what you are better than average at—the things that light you up inside and where you have found success and high performance.
Maybe it’s networking, communication skills, problem-solving, or project management. If you’re having trouble deciding what to put on your list, ask the people closest to you for their opinions.
Asking for others’ opinions is a good place to begin a conversation with your manager. It’s an opportunity to show that you’re invested in the company’s goals and that you want their buy-in when you create a plan.
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What would you say to support your claims if someone asked you in a job interview about your skills? If the strength you want to highlight is writing, what writing have you done to show what you can do?
Think about where you’ve demonstrated talent with particular tasks. The next step is to look at how these strengths fit into your current situation and evaluate what changes you might need to make and what you might still need to develop.
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From your list, you should know what you need to do to develop skills or make a case for how your skills can benefit your team. Showcasing and strengthening your talents and skills can help you find the right role from the beginning of your time with a company.
Beyond that, it’ll set you apart by increasing your productivity, motivating you to grow into your potential, and setting you up for more leadership positions. Put together an actionable, specific plan to move forward.
For example, suppose you want to earn a raise. In that case, your plan might include sitting down with your supervisor and discussing how these personal talents and skills benefit the company and how you’re growing into them to increase that benefit—which can help your manager see the benefit of keeping you on the team.
Understanding and leveraging your skills and talents are crucial to building a freelance career. You have to know what they are to create an effective service offering.
How will your strengths help you identify and assist potential clients? Clients want to hire experts who are always looking to improve and stay on the cutting edge of trends and technology.
This article originally appeared on Upwork.com and was syndicated by MediaFeed.org.
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