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Best Practice of the week: 5.5.2 Performance pay. How to reward an employee's heroic efforts when cash is tight?

Salaries have remained unchanged during the pandemic, but Mercer reports 94% of employers (in a survey of 662) will go ahead with 2020 raises. But many employees have put in heroic efforts:  how to reward them in such uncertain times and cash is tight?  Many large retailers have opted for the flexibility of full-time employee spot or one-time bonuses: by July 1 Amazon had paid $500 once, while Walmart had paid out $300 three times.


THE CENTER’S BEST PRACTICE OF THE WEEK: 5.5.2 Performance Pay

Definition of Performance pay: “How to reward exceptional work, financially and otherwise.”


Best Practice Summary

Bonus types

  • Employment bonuses:  signing, referral, retention
  • Performance or reward bonuses (lump-sum or equity) - annual or year-end bonuses (meeting a target)
  • Spot awards (employee recognition)
  • Milestone (longevity)
  • Profit-sharing: contributions to trustee accounts
  • Gainsharing: productivity increase or cost reduction

 Employee considerations

  • Employee vs. team: how is work organized?
  • Salary vs. bonuses: how much can measurable employee or team performance affect profit?
  • Potential for attaining the target
  • How important is attracting and retaining talent?
  • How important is knowledge capital?
  • How significant an amount is required to create incentive?

Organizational considerations

  • Business goals and targets: how well defined? Possibility of quantifying accurately?
  • Cyclical cash flow
  • Overall risk of business
  • Industry practices
  • Employee preferences
  • Ability to manage bonus expectations each period so that the incentives remain, preventing entitlement

Bonus plan characteristics 

  • Simplicity/clarity
  • Equitability
  • On-time

 Key Metrics

  • All metrics: SMART (specific, measurable, achievable, relevant, time-sensitive)
  • Quality: amount of work that has to be redone, quantity returned

Click the image below for the resources approved by our Review Board.


3 Good Questions (discuss in a management meeting)

  • What do employees value most about working here?
  • Why should we pay more or less than our competitors?
  • How do staff differ in their compensation needs?

“Spot bonuses” are a prudent and affordable way to boost morale during risky times. Because they are arbitrary, they need only be awarded when cash is on hand and some very short-term contingency met.

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The Center for Management Terms & Practices is the standards body for general management. CEOs can delegate with confidence if managers in every department use the same best practices, language and tools. See The GMs Index and The GMs Toolkit.

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