When Are Staff Raises, Bonuses Warranted?

When to give a raise:

• Performance Based

  : These come into play if the employees are going above and beyond what they are expected to do at work — sometimes even before the deadline — and they are constantly looking for ways to help grow the business.

• Cost of Living

  : This type of raise is a direct result of the economy and is typically done across the company. When the cost of living goes up, you may give your employees a raise so they can keep up with rising inflation.

• Annual

  : This type of raise is given annually to all employees and is usually linked to their performance.

• Merit Based

  : These raises are given when an employee learns a new skill set; for example, when an accountant becomes a Certified Public Accountant (CPA). Merit-based raises are usually only given to staff members based on their performance and company goals.

• Length of Service

  : Employees who work at organizations for long amounts of time, say, 10 or 20 years, often get periodic, milestone raises.

About Bonuses

Long-term employees with good track records who have not been eligible for pay increases (often because they have reached the top of their pay brackets) may also be rewarded with bonuses. This practice provides them with an incentive, without locking in a fixed amount that has to be given every year. Bonuses are mostly discretionary on the part of management, and may be given only when the employees’ performances warrant them.

Many business owners find bonuses to be more financially feasible since they’re a variable cost. And since the compensation is variable, the amount of bonus can be reduced or eliminated completely if business conditions make it difficult or impossible to justify them.

However, while the ability to avoid or minimize the expense of bonuses is attractive to business owners, it can be damaging to employee morale. Most employees rely on their paychecks to pay bills, and unpredictable fluctuations can be disruptive and cause staff members to seek employment elsewhere.

Because of this, as a business owner, you must explain to your employees that sometimes, reducing expenses can not only help the company save money but also can save jobs, especially when business temporarily slows down.

How Much Should a Raise or Bonus Be?

Deciding how much of a raise to give an employee can be challenging. By some estimates, pay raises typically range anywhere between one and five percent, but the average is about three percent. The overall raise percentage is dependent the employees’ current compensation and how much they are adding to the business.

Other factors that can be considered include what the competitors are paying and how long your employees have been working at your firm.

When considering bonuses, you should first figure out the minimum level of financial performance that your company needs to reach before distributing bonuses. Then, determine how much of the profits you’re willing to share with your employees. It’s best to come up with a plan to set aside some money throughout the year to fund bonuses.

One good way to offer bonuses is by setting goals that directly link increased sales and profits to bonus payouts. Consider creating tiers for different performance levels.

Author

Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.

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