Bonus Brilliance: Five Financial Strategies for a Successful Bonus Program

Too often we see business owners institute a bonus program simply as a means to woo potential staff and little more. These owners are missing the (very large) mark. A bonus program is not simply a compensation tool but also a staff retention incentive, culture driver and amazing opportunity to promote desired outcomes and change within the organization. Here are five tips and tricks to create an effective bonus program that your company can be proud of.

1. Incentivize Desired Outcomes

You want a bonus program that motivates and rewards your staff for enhancing existing processes or achieving new heights that directly influence your operations. For example, diminishing the number of overbookings, lowering the average turn time for a hotel room, or keeping labor margins down. Identifying and clearly defining these operation-based outcomes results in a bonus program that ideally pays for itself. 

2. Bonuses Based off a Percentage of Earnings (Not a Fixed Dollar Amount)

Often, businesses make the mistake of offering fixed amounts as bonuses. Instead, bonuses should be a percentage of an employee's annual earnings. By setting a bonus at a percentage of their yearly wages (e.g., five percent), fairness is ensured for employees working a full year versus those working only part of the year. This approach also allows for accurate planning for year-end obligations and introduces flexibility into the bonus structure. 

3. Pay Out Bonuses at the End of the Year

Effective bonus programs track performance throughout the end of the year. By implementing a policy to disburse bonuses by the middle- to- end of the first quarter, you achieve two crucial objectives. It allows time for evaluating annual employee performance and providing feedback, and it ensures that bonuses are only paid to active, in-good-standing employees at the time of payout and business owners benefit by recouping the cost of an employee if they leave before the payout.

4. Make Them Easy to Track with Numerical Value

Business owners often set ambitious goals like: "enhance the guest experience" or "smooth the guest arrival process.” But if these objectives aren't easily tracked by a numerical value or established standards, it’s tough to measure the results and even harder to provide consistent feedback for employee performance. Furthermore, if a goal is advertised as part of the bonus program but can't be tracked, it must still be paid out. Failure to do so essentially withholds wages from employees, constituting a breach of their employment agreement.

5. Accrue Bonus Funds Year Round

One of the best strategies for your bottom-line is to accrue bonus expenses monthly to a liability account throughout the year. This practice helps keep profitability down for tax purposes and provides a realistic picture of financial performance. It's crucial not only for your profit and loss statement but also for your bank account, ensuring sufficient funds at year-end for payout without hurting your operations.

In conclusion, bonuses can be an amazing tool for driving operation performance, while engaging employees and increasing overall satisfaction, ultimately hitting two birds with one stone. When implemented properly with the right financial know-how, you can get the best of both worlds. 

If you’d like help calculating bonuses based off a percentage of earnings, visit the Specialty Bookkeepers & Tax website here to receive a free, easy-to-use bonus calculator in Excel.

Tyler Otto is president and owner at Specialty Bookkeepers & Tax. He presented “Five Keys to Open the Door to Stress-free Cash Flow” at the HFTP 2023 Annual Convention.