5 Key Elements of an Effective Bonus Program

By Jason Swenk on February 4, 2014

How to setup a bonus structureI get asked all the time how we incentivized our employees. In this post, I talk about how we developed a killer bonus plan structure for each and every employee.

First, you need to determine what your company is trying to achieve by creating a bonus program. Are you trying to motivate behaviors and tasks, or just tasks? Overall company profit? Creating a bonus program isn’t rocket science; just following a few simple guidelines is likely to result in a successful plan.

I knew we weren’t the highest paying agency out there; we couldn’t afford to be.  Because of this we needed to find a way to motivate the employees who went above and beyond their job requirements.  In turn, we came up with the 5 items listed below to help us outline our bonus program.

5 key elements of an effective bonus program

  1. Fair—Eliminate resentment between job types or departments by making the bonus programs fair across your company.
  2. Simple—make sure it is easy to understand.
  3. Meaningful— the employee’s actions must have direct impact on the company results.
  4. Objective— no subjective opinions. Only measurable results.
  5. Check-ins—share progress against goals as frequently as possible.

Here is how we setup a bonus plan structure for our employees:


In the beginning of every quarter, we had our employees set their quarterly goals based on growing the company. This can apply to any role from HR, with increasing retention or hiring new qualified employees to Web Designers, based on how the customers rated the design. The goals could be anything that affected the company in a positive way. We approved the goals based on how valuable there were to the company. We weighted them as well, in order of importance.

The key to any bonus structure is to constantly do check-ins with the employee.  Let them know where they are in regards to hitting their bonus. Your job as an owner and manager is to help employees achieve those goals  and motivate them into taking action to hit their goals.  Once they hit their bonus, make sure to acknowledge the achievement in front of the company, giving the employee recognition as well as motivating other employees.


We also tied the bonus plan to an increase in company profits. We would set a company goal of profitability at, say,  25%. We would put a weighted percentage tied to that goal in order to calculate the bonus.  One other unique thing that we did was put a clause in the bonus structure called a profitability gate. A profitability gate states that if the company was not profitable and the person met their goals-based requirements for the bonus, no bonus was paid. This wasn’t a fan favorite but the ultimate goal of any company is profitability. You can’t hand out bonuses when the company, as a whole, didn’t meet the goals.

You need to clearly communicate the bonus guidelines. The most common pitfall when creating a bonus program is not clearly communicating it to employees. It’s essential that it be clearly documented and that it addresses the structure of the plan including fairness, measurability, and an attainable target. The plan should be transparent and describe what you’re doing and why.

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Keeping your team happy with a structured bonus plan will inspire them to work harder for your agency.

If there are other agency problems you are either ignoring or aren’t even aware of that needs your attention, this is where I can come in and provide you support.

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