Posted by Sarah Lardner on 16 December 2022
How to maximise the value of bonus and commission schemes
As with most things in HR, careful planning is at the root of driving efficiency in bonus and commission schemes. Only by putting the right amount of thought into designing schemes can they provide a continuous, circular benefit to employee and employer rather than an annual start-stop-restart train ride. This same planning should also ensure that employees are measured, tracked and communicated to in the right ways, and that you keep things as efficient and streamlined as possible, both in your policies and in your corporate governance.
Design it right
When we work on designing a bonus or commission scheme, we need to maximise the value for the business as well as the employees. Essentially, a bonus scheme is about driving the right behaviours, outputs and business results, and the design needs to be simple, not over-engineered, and stick to its guiding principles, whatever they are.
Top tip: A scheme that starts off as simple but is then iterated upon or tinkered with often evolves to a breaking point where it starts driving the wrong behaviours, so guard against that.
Define the metrics
Schemes must be engaging, and the metrics need to be precise and easily understandable. In other words, an employee needs to have line of sight to know how they can achieve against the agreed metrics, and how they can influence their contribution towards it. Their goals should be challenging enough to allow for stretch, but never unachievable.
Top tip: Strong workers should really be able to put their foot on the pedal and get a return on that in line with the business model.
Communications: Simple and creative
Once the metrics are set, you need to explain how it works. The comms piece around this needs to be simple and consistent so that the employee always understands what is being asked of them in terms of KPIs, what they need to achieve, how they can achieve it, what it means to the business’s targets and what they will get as a result. Usually, the simpler the scheme, the clearer the comms.
Competition works well to drive motivation so use it creatively: leader boards or league tables create excitement but also drive workers on to deliver. The more personalised the comms can be around this, the better.
Top tip: Don’t be afraid to use examples or case studies to spell out how it works.
Hidden danger: don't make your communications so simple that you open yourselves up to misunderstanding or manipulation, either intentional or unintentional. If a worker can earn more commission and tick more boxes by sticking to one KPI and not delivering on another, they might well do that. The design of the scheme should mitigate this in most cases.
Progress towards targets
Tracking employees’ progress is arguably the most important piece in this whole puzzle. Particularly with annual schemes, if workers are measured only on a monthly or bi-annual basis it potentially leaves them in the dark for a long time, not knowing how they’re tracking. They might be a way off and have no idea, or they may have hit their targets and not realise they’re entering a bonus boost level (if that's a feature of the scheme). With constant communication – the kind you can drive through a Reward App like HAPI – workers are always in the picture, the momentum never stops, and the business can derive maximum value.
Top Tip: Consider using a Reward App
Think Efficient
Clearly a scheme needs to incentivise workers, but you also need to guard against giving away too much revenue and cutting your margins. We are constantly surprised by how many schemes are double-counting, essentially paying out to multiple employees on the same sale. Admittedly, it is a tricky area to get right all the time because some metrics will be shared and commission, incentive and annual bonus schemes will all vary. The bottom line is that it must be affordable and financially efficient with a mechanism to make sure there's money in the bank before anything is paid out.
Driving efficiency should also stretch to the schemes’ administration and management. For an incentive scheme to commit to paying out monthly requires a company to run a lot of numbers, so the more you can streamline and simplify processes, the better.
Corporate governance: cover yourself
Finally, in terms of your corporate governance, try to ensure you write in protective measures for the business in the case of employee malpractice. If an employee’s behaviour jeopardises compliance or health and safety, for example, and something untoward happens, a company should be within its rights not to pay out. If that’s not covered in the rules, they could still be forced to. By the same token, the governance might also protect an employee’s rights to claim commission on a sale that pays out after they have left the company.
Top tip: If it’s fair, it should be fair both ways
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