The Great Reward Debate – Bonus vs Pay Rise 

Small businesses are supported by their employees, like a backbone. They are also the face, and often the voice that can directly impact how successful a business is. In order to project the future success of a business, it’s imperative that great talent is initially hired, and also retained. With regards to the attracting and keeping top talent, you need to strike a balance between the progression of salaries and offering both attainable, compensatory bonuses. In achieving the right balance, you are also able to maintain a healthy bottom line.

 

The reason that we all go to work is to get paid! While some may worry that this a reflection of their ethics and values – let’s be honest, we need to be able to support ourselves and our families. Of course, it’s the perpetual dream to be able to secure a role that we are also passionate about and enjoy, but in these roles, the fact still remains that we are paid. From the perspective of the employees, being paid more money is the goal, of course for many small businesses, this option isn’t always possible. It is for this reason that many businesses create financial compensation packages that are comprised of pay rises and periodic bonuses. Taking this approach allows business owners to reward their employees for great work and when pre-determined targets have been reached, whilst also providing them with the flexibility of reducing business expenses if conditions changes.

 

The average bonus is between 3 and 5% of the employee’s annual salary, or for upper-level management, this figure can reach between 15 to 50%. It is often deemed that bonuses are a more manageable financial expense because they are variable, and can be reduced when necessary in fact, bonuses are making up more than 12% of pay packages now. However, while this provides some peace of mind when it comes to business owners, it can prove to be detrimental when it comes to employee morale and productivity. If the prospect of bonuses suddenly becomes unreliable, employees may begin to seek employment elsewhere. When it comes to staff bonuses, employers must strive to communicate honestly and concisely to employees about fluctuations that may occur. Staff need to be aware that while changes to a bonus are far from ideal, reducing expenses in this way in tough times means that jobs can be saved. Bonuses allow businesses to maintain low fixed costs and remain competitive; however, to maintain staff morale and therefore, productivity, the goals for obtaining the bonuses must be reachable.

 

Another way of rewarding good work or achieving company targets, has been through awarding pay rises, typically around 1-3% across the board.  In recent years, the turbulent economic landscape has meant that pay rises have been meagre, if they were still paid at all and HR experts believe that the impact they have on an individual’s lifestyle was little to none. This leads to employees striving for a promotion or switching roles to get that step up in salary they are looking to achieve.

 

Of course, pay rises aren’t always possible for businesses in tough economic conditions especially if they are trying to keep themselves afloat to avoid making any redundancies.  Businesses are now exploring other benefits to reward employees.

 

One is to work closely alongside employees, providing regular feedback rather than having one annual review, that cultivates a way of working that increases efficiency and results – meaning that a more impactful raise can be given based on consistently impressive performance and habits being formed. Other benefits that businesses are exploring include health insurance, gym membership, paid time off and commuting subsidies. Millennials now make up more than one-third of today’s workforce and it has been reported that they favour short-term rewards and flexibility over long-term security. The cry for a better work/life balance has also been a driving force behind the seismic shifts that are creating meaningful reward practices that give employees valuable compensation and allow businesses to maintain a healthy bottom line.

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