Tuesday, 25 February 2014

Paying Bonuses



I had a client email a question about how to structure an incentive bonus for a new sales person they want to employ. I get this question a lot so I thought I would share with your my response. Always bear in mind, if your are going to offer some form of bonus or incentive scheme to your staff, it's a reward for over-performing not for doing the job anyway. This is what I wrote:

I would look at an incentive bonus tied to sales not profit. Bear in mind the bonus is only over and above a base minimum of what she needs to sell. You must set a budget per month as a target of what she needs to sell. The incentive is then based or whatever she sells above this budget. So if she has a budget of $20,000 per month then she would be incentivised only on the excess above the $20,000 not including the $20,000. Otherwise you are paying a bonus just to hit the budget that she is supposed hit anyway.

Bonuses and incentive payments are for rewarding people going that extra mile, not just doing their job and hitting their budget. They want the extra cash, then bring in the extra sales.

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