Reasons for Bonuses
Patrick L. Lancaster wrote in "Inc." that bonuses help companies achieve short-term goals but undercut their long-term objectives. Despite this one entrepreneur's negative view of bonuses, variable pay structures are common in business. The reasons for bonuses vary but fall under the general theme of keeping employees productive and satisfied with the company.
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Employee Recruitment and Retention
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A bonus, often given as a percentage of salary, is a way of keeping quality employees. Like benefit plans, vacation time and flexible working hours, bonuses form part of the overall offer package to a prospective employee. Once the company has staff on the payroll, the bonus structure is one way to encourage them to stay with the company. Bonuses, which companies pay only upon the fulfillment of certain conditions, such as individual performance or company sales volume, are cheaper for the company than higher base salary schemes because not everyone will meet the conditions to receive the bonus.
Reward for Strong Performance
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Bonuses reward employees for meeting certain targets, for example, a set amount if a salesperson achieves a certain volume of sales. This bonus reinforces a positive relationship between the company and the employee. It is a win-win for both parties: the employee gets more money, and the company gets more revenue. It is also another way to enhance the employee's overall benefit package without raising base salary levels.
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Employee Incentive
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A bonus is a way to provide incentive to employees if sales are lacking and morale is low. A bonus based on targets that are within reach for most employees is way to get employees excited about the company. Ongoing incentives within obtainable levels ensure a stable level of productivity especially in jobs that are not directly related to sales. Processing insurance claims is as important as selling new policies; providing an incentive above base pay for processing volume is a way to make sure the wheels of the bureaucracy continue to move.
Appreciation
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A holiday bonus, in the form of a gift or additional cash, is a token of appreciation from an employer to his employees. Unlike other forms of bonuses, companies don't promote the holiday bonus as part of a job offer and is never promised to employees. It's given without notice to show the employees that the company values them. In return, the employees' positive feelings about the company increase.
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