What is a good bonus structure? Why opt for a bonus plan?
A good bonus structure is one that is easy to comprehend and implement. We have zeroed in on a straight profit-sharing bonus plan considering its simplicity and all-inclusiveness, making it preferable over a widely followed performance bonus.
Performance bonus plans are complex and focus solely and excessively on individual performances. It can be a laborious task to assess the individual contributions and decide upon varying bonus percentages.
Moreover, it’s important that we offer win-win solutions to our staff. We take pride in a very selective recruitment process, and our staff are therefore high performers and deserve to be part of the company’s financial success.
The current plan determines each employee’s bonus based on a percentage of their total remuneration. The bonus for financial year (FY) 2019 is calculated as 5% of your total remuneration for the period. The 5% figure is based on the company’s profitability for the fiscal year.
This, however, excludes one-time big-ticket costs such as the high first-year depreciation of our new SmartCity office.
The bonus percentage will naturally change in the future as the profit (and more importantly profit per employee) changes.
An incentive program for a sales/marketing/recruitment team could be structured differently as their efforts have a direct impact on the overall growth and profitability of the company. At LB, this incentive is set to 7% of total remuneration for FY 2019. To make total compensation fair, hikes may be slightly lower compared to developers who are not directly responsible for the growth of the company.
Benefits of a bonus plan – an employee’s perspective
A higher remuneration than if the company had no bonus payout policy
It is an employee benefit provided additionally over the salary.
A clearer motivation to work cross-functionally
A silo mentality is detrimental to a company’s culture and productivity. It is when teams work as individual units withholding knowledge and information.
A profit-sharing bonus structure breaks silos and encourages employees to liaison with other departments/teams to reach a common goal.
Benefits of a bonus plan – the company’s perspective
LiteBreeze’s profit-sharing bonus plan is an all-inclusive plan that makes every small and big contributor to the organization eligible for a yearly bonus. This creates a sense of ownership and belonging that makes staff more loyal towards the employer.
Encourages to focus on the big picture
The current bonus program will encourage employees to consider how their tasks are contributing to the overall profitability of the business. The bonus is an additional incentive to self-evaluate and improve, in addition to the value maximization concept that is discussed with colleagues during the biannual appraisal process.
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What is the tax rate on my bonus?
The tax rate is the same as for your regular salary (in India). A part of your bonus may fall into a higher tax bracket though.
How is the bonus percentage determined for each year? What is the bonus calculation method?
The key number that determines the bonus percentage (which was 5% for FY 2019) is the profit per employee.
When is the employee bonus declared and paid out?
At LiteBreeze, the bonus percentage is usually determined in August, as the fiscal year ends on 31 March. It takes some time for the accounting department and auditor to finalize the books, and for management to analyze and determine a reasonable bonus percentage. The exact amount of bonus given is declared and paid out along with the hike after an employee’s appraisal.
Will I lose my employment bonus if I resign?
Bonus programs generally serve as a win-win loyalty bonus. The bonus will not be paid out to employees who have resigned.
Why should you not give an individual performance bonus for each employee?
A bonus or incentive system based on individual key numbers or separate percentages depending on performance becomes complex and risks resulting in endless discussions on why person X got so much and person Y only that much.