Bonuses and Incentives

Bonuses and cash incentives are a form of variable pay linked to individual, collective or organisational performance. Non cash incentives are also widely used. You’ll find here a carefully noted research with information on bonus schemes; financial and non-financial incentives; incentive pay; competency based pay; skill based pay; employee recognition schemes; commission and executive bonuses.

At Humba-HR-Consultants we take pride in sharing ideas that are lucrative to small-medium and large organisations so that we increase awareness and our way of giving back to the community. Care is needed when drafting bonuses or incentive payments clauses therefore the structure has to be diligently planned. Additional remuneration in the form of performance bonuses or incentive payment is likely to become more common given the need to retain good staff in our tight labour market. Therefore, it is a timely reminder that care should be taken when drafting such clauses so that employers are not unnecessarily trapped by poorly drafted employment documentation. A well drafted bonus clause will protect an employer and provide flexibility to allow an employer to choose whether the bonus or incentive should be paid.

There are various types of bonus arrangements. One of the most common types of bonus is a merit-based scheme where an individual is entitled to a bonus based on their own performance. Alternatively, many bonus schemes are based on the company’s performance or a combination of both individual and company performance.

Generally, a bonus scheme depends on certain criteria being met. Any bonus should be very specific as to the criteria which must be met for the bonus to be payable. If the bonus scheme relies on an employee having “satisfactory performance” or “significantly exceeding their performance,” then whether the employee has satisfied these pre-requisites must be assessed objectively by the employer, which can be difficult to do. In addition, the employer must have put the employee on notice that his or her performance is not satisfactory prior to the period when the employee is to be awarded the bonus.

One of the major determinants of whether an employer will have flexibility in bonus arrangements will depend on whether the bonus is a contractual entitlement of the employee or whether its existence, amendment and operation (including any decision to pay) are at the sole and absolute discretion of the employer. A contractual bonus is a bonus where, if the criteria are fulfilled, the employer is obliged to pay it in accordance with the terms of the bonus.

 The employer has no ability to revoke the bonus, or not pay any bonus. Alternatively, a discretionary bonus is paid at the employer’s discretion and there is no guarantee that it will be paid. However, employers are under an obligation to exercise their discretion reasonably and fairly, when deciding whether to pay any bonus. Employers should also note that, even where the bonus is discretionary, a legitimate expectation may be created where it has always been paid to employees. Further, if all employees have met the criteria for the bonus, the employer cannot only pay the bonus to some employees and not to others.

A well drafted bonus clause should provide that any bonus is discretionary, and should be worded so that it appears as a one-off bonus, and so it is at the absolute discretion of the employer. Any bonus clause should also provide that the employer reserves the right to vary the terms of the bonus, or revoke it. Having discretionary bonuses assists employers manage bonus programmes, and also removes bonus payments from annual leave calculations, thereby reducing costs.

Some bonus schemes provide that the employee must be employed by the employer at the time the bonus payments are quantified and paid to employees. Such a clause is recommended and is beneficial to employers. However, employees who are working out their notice period are still employed by the company, and accordingly remain entitled to their bonus under this type of rule. Further, an employer cannot delay paying the bonuses to employees, to avoid having to pay it to a specific employee, where the bonuses are usually paid during a particular time of the year. Impeccably structured ideas shared with employees input will definitely put that much needed adoption.

Performance bonuses or incentive schemes are in addition to an employee’s salary and constitute part of an employee’s total remuneration package. This should be made very clear in employment documentation. The employee’s salary should be referred to as ‘base salary’ to be clear that this entitlement does not include any other remuneration, such as the bonus.

If an employer does not pay an employee their bonus or incentive entitlement, when they are entitled to it, they may bring a claim in the Employment Relations Authority for a breach of contract and may seek arrears in wages. This is in addition to the annual leave costs that can accrue if bonuses are contractual and not discretionary. For these reasons, well-drafted bonus and incentive payment provisions are crucial, and getting them right can be critical to avoiding unnecessary cost and inconvenience.

A carefully structured bonus program can enhance employee performance and morale, improve patient care and satisfaction, and boost practice efficiency. However, when not structured correctly, an incentive program can be counterproductive, undermining both practice efficiency and staff morale. Here’s how to avoid some of the common pitfalls and some advice on implementing a successful bonus program.

Management styles can vary considerably from person to person and what works for one practice may not work in another. Finding new ways to keep your staff motivated is important. Most tailored bonus and incentive programmes are effective because they only exist in that particular work environment and not in others. Therefore every organisation should not copy but have specialist structure a bespoke structure to suit their personal business. A successful bonus program can boost a practice’s bottom line. And when the practice takes in a greater profit, there is more money available in the bonus pool to draw from, thus creating an ever greater incentive for employees to perform efficiently and remarkably in the future.