Setting up a Bonus System does not need to be difficult, it doesn’t need to add unsupportable expense into your business, but it does need to be equitable and it does need to be easy to understand and implement.
When you decide to set one up for your business, keep these typical mistakes in mind, so you avoid making them!
Mistake #1: Equity is not a form of bonus
Many business owners often use ‘equity’ and ‘bonus’ as interchangeable terms. They want to reward their people for doing a good job, but aren’t sure exactly what they want to do for them.
Equity is a share of the company, and brings with it shareholder liabilities. Most people don’t want equity in their employer’s business, but they do want a bonus for good performance. Bonus payments are paid out of profit and based on degree of performance.
Mistake # 2: Most bonus systems are not based on forecasts