Bonus time: Like it or not, managers still largely decide who gets paid

2019 Bonus Survey shows tradition reigns, but when bonuses are paid is changing

The holidays are here, and many business owners use this time of year to reward their employees’ outstanding performance for the past year with an eye toward driving that level of performance for the next year. Historically, a bonus is used for this purpose – but is this system working? Many business owners are contemplating this very question.

We recently distributed a survey to find out what bonus system business owners actually have in place. The responses revealed that many of the long-standing pillars of how mid-sized companies pay bonuses still prevail.

For instance, if you’re an employee hoping for a bonus this year, it still helps to be in the good graces of management, as their discretion often comes into play. Employees might also need to have a certain title or number of years of experience under their belts to even be considered.

One interesting deviation from the traditional end-of-year holiday bonus check, however, was when that check was hitting bank accounts. According to our survey, bonuses are transitioning into an incremental payment system, which is being divvied out throughout the year.

So what should you do? At CFO Strategic Partners, we strongly believe that a properly designed and executed bonus plan can make a big difference in a company’s bottom line and culture. Our casual survey shows many mid-sized companies are on that path, but there’s still work to be done in tying bonuses to performance.

Below is a breakdown of our results. Still have questions? Our firm has set up hundreds of performance-based plans over the past two decades. Please reach out to Shannon at shannon@cfosp.com so we can discuss your situation.

Standardized bonus plan

There are two basic types of bonus plans – formal and informal. With a formal bonus plan, employees understand they must perform a certain amount of work in order to receive a certain amount of extra pay. They are aware of what can affect their chance of receiving a bonus and, if earned, know when to expect the extra payment. With an informal bonus plan, there isn’t a formula employees must follow in order to qualify, nor is there typically a standard time bonuses are given out. Nearly 60 percent of our survey respondents reported having a formalized bonus plan.

Company vs. employee performance

There are many factors that can go into a bonus plan, but the bottom line is that bonuses are almost always tied to either company performance, individual employee performance or a combination of both. Over half of our respondents shared that their bonuses are reliant upon both company and employee performance.

Bonus dependencies

When determining whether or not an employee should be awarded a bonus, there are some key factors that can come into play. Out of our respondents, 50 percent said bonuses are dependent upon an employee’s title or level within the company. In addition, 37.5 percent marked years of service as a factor, and 18.75 percent stated employment classification played a role. Other respondents went on to share attendance and quality of work are considered in their decision-making process. Finally, 43.75 percent of respondents answered all of their employees are eligible to receive a bonus.

Bonus amounts

One of the biggest questions business owners and CEOs have about bonus plans is how to determine the amount awarded. Our survey uncovered management has a hand in deciding bonuses. The top two answers were: 1) Decisions are made using pre-determined calculations incorporating management discretion, and 2) Decisions are made based completely on management discretion. Only 18.75 percent of respondents made bonus amount decisions using a calculation with little deviation.

Bonus payment

When employees find out they are receiving a bonus, they are eager to know when and how they are receiving the extra payment. Through our survey, we discovered a majority of respondents paid bonuses in increments, with slightly less paying bonuses in full. Three individual respondents shared they paid bonuses in one of the following ways: 1) Bonus payments are timed around holidays or large vacations,  2) Bonus payments are made quarterly, and 3) 75 percent of the bonus is paid in January, and the remaining amount is distributed after the company’s year-end audit is released.

At CFO Strategic Partners, we have designed and helped companies across many industries implement impactful bonus plans. Through years of experience, we have determined both best practices and important things to consider in order to effectively tie bonus plans to the ability to power performance. Our team will work with you to craft a bonus plan designed to fit your company’s needs, boost employee morale and make a big difference to the bottom line. Call 407-426-8288 or email shannon@cfosp.com to start the conversation!