If middle market companies are to compete for the best talent, their compensation and culture must rival those at larger companies. Interestingly, there's one way for a midsized firm to strengthen its position in both areas: by creating a variety of desirable bonus programs. In fact, a 2014 WorldatWork survey reported that attractive company benefits are becoming even more of a necessity. Bonus-compensation data gathered from managers at 713 companies, 77 percent of which have 1,000 or more employees, found that sign-on and retention bonuses are at all-time highs, while spot-bonus programs and referral bonuses are at their highest since 2000 and 2010 respectively.
To implement bonus programs that satisfy employees while also benefiting the organization, executives at midsized firms should keep these in mind:
- For sign-on bonuses, discretion is the key. These are generally used to fill positions requiring hard-to-find skills and can determine what size firm a talented prospect chooses. They also can offset a starting salary slightly lower than a candidate initially sought. This lets the firm assess the new hire's value without committing to a large base salary on day one. In the same vein, sign-on bonuses can be structured as staggered payouts, with each one attached to performance goals that will be met throughout the first several months. It's also possible to implement "clawback" provisions for partial repayment in the event of a new hire's quick washout.
- For referral bonuses, motivate your employees to suggest the best talent. Make the bonus policy clear. Is there a payout for filling each open position, or only specific positions? Does the bonus get paid in part on the employee's first day, with the rest due after the first performance evaluation? Or does it pay out in full after that evaluation? Will the bonus be increased if the new employee receives an exceptional evaluation? Full understanding of the policy will drive employees to suggest good talent and help new hires once they're on board.
- For spot bonuses, be transparent. Say specifically which individual and team behaviors you'll reward and create a budget for each. Set proper expectations among employees, but also keep the awards from being too frequent or predictable — overdoing rewards reduces impact and unnecessarily drains the budget. However, if an employee's short-term actions produce a noticeable result or a positive atmosphere, a smaller reward given in front of colleagues can motivate everyone, not just the recipient. But what should you use as a reward? Studies show that giving merchandise, services, travel and entertainment produces a stronger and more lasting impact than cash. A $50 gift card to a restaurant, sporting goods store or even a car wash will be remembered for its utility and thoughtfulness. On the other hand, $50 in cash could easily go into the employee's gas tank on the way home, thus minimizing the gesture.
- For retention bonuses, tailor each package to the employee. Executives must weigh each offering for its long-term financial effects on both the person and the company. Though liquid cash is useful right away, there is no lingering allure for the employee, and repeated expenditures can be harmful for an organization's budget. However, profit-sharing plans motivate people to stay because, aside from being additional compensation, they foster trust in management and camaraderie between employees from different departments. Everyone has a stake in company profits, and when employees can see and reap the benefits, they tend to stay and try harder. For some midsized firms, stock options are another possibility, allowing an employee to own part of the business at a favorable price. The right to purchase stock often accrues over time or upon achieving specific performance goals, thus promoting employee longevity. Profit-sharing plans and stock options both have a schedule that determines when an employee is fully vested, which can also help reduce turnover.
Any good company benefits program responds directly to employees' needs. A firm can achieve its desired effect and value from bonus programs by learning about workers' motivations and habits, both in the office and at home. If management gives the staff its due attention, it will be able to attract the best new talent while retaining those already employed.
What types of financial incentives have you or your employees found most beneficial? Tell us by commenting below.
Rob Carey is an NCMM contributor and a features writer who has focused on the business-to-business niche since 1992. He spent his first 15 years at Nielsen Business Media, rising from editorial intern to editorial director. Since then, he has been the principal of New York-based Meetings & Hospitality Insight, working with large hospitality brands in addition to various media outlets. Circle him on Google+.