Bonuses for employees

Bonuses can help attract and retain staff who value financial incentives at work — which, let’s face it, is most people. And performance-related bonuses can help to keep staff engaged, by promising a higher level of reward for stronger performance.

But are bonus schemes really for everyone? And what’s the best way to set one up and manage it?

Which companies use bonus schemes, and why?

In Australia, companies often use a variety of bonus schemes depending on the industry and role, with common options including performance-based bonuses tied to individual or team targets, sales commissions for sales roles, profit-sharing schemes, discretionary bonuses based on company performance, and sometimes even sign-on bonuses; however, it's important to note that no single scheme is universally used across all companies, and the specifics of a bonus plan will vary depending on the employer.

The most common type of bonus scheme are individual bonuses (otherwise known as annual bonuses or performance bonuses) which are typically calculated as a percentage of the employee’s salary. On average, decent bonuses in Australia range between 6% and 10% of the annual wage.

Contractual vs discretionary bonus schemes

If you decide to operate an employee bonus scheme, a key decision is whether to make it contractual or discretionary.

• Contractual: As the name suggests, contractual bonus schemes are written into the contract. You have no discretion on whether to pay a bonus — if the employee has earned it, you must pay it in accordance with the contract terms.
• Discretionary: Discretionary schemes aren’t written into the contract, so you have more flexibility in adjusting terms and bonus amounts.
• Mixed: Most employers take a best-of-both approach, offering employees a contractual right to join the bonus scheme but keeping bonus sums at their discretion.

Group, non-cash and other incentives

Individual cash bonuses aren’t the only type of incentive scheme available to you. You can also consider:

• Group incentives: When individual performance is not your focus, you can base your bonus scheme on other criteria such as overall business results, team performance, project outcomes and others.
• Non-cash incentives: Offering merchandise (e.g. electronics or watches), activities (e.g. nights out), travel or retail vouchers can tie in with team building and other goals. Non-cash incentives can also offer more value than cash when purchased in bulk at low cost.

Bonuses should, of course, correspond to an employee's performance acting as recognition for great work.

For answers to more specific questions about bonuses and round-the-clock support, speak to the experts on the BrightHR employment relations advice line or call 1 300 029 198