Setting up an employee productivity bonus scheme


Date: 23 March 2020

A business owner congratulates a successful worker and shows appreciation in the office.

Productivity bonus schemes are a crucial way for businesses to motivate their employees to improve their performance, causing a knock-on effect of boosting company profits.

Workers respond well to incentives, and bonus schemes can also have positive connotations for recruitment, as you’re more likely to draw in the best talent. Rewarding your employees for their hard work can also help you retain the best people for your business.

But for small businesses with limited budgets, creating a productivity bonus scheme can seem tricky. You need to strike the right balance of rewarding your employees with what they deserve and not bankrupting yourself in the process. However, large annual bonuses aren’t the only incentive you can give your employees.

Here’s everything you need to know about creating a productivity bonus scheme for the employees in your small business.

Outline your goals

More generally, incentive schemes are about boosting employee motivation and productivity. But to ensure that your bonus structure is sound, you should outline the goals you’re trying to achieve with your incentive scheme.

Bonuses should be based on a goal-oriented structure so you can ensure that the right kind of performances are getting recognition. For this to work, you need to define the goals of the incentive scheme in a way that is specific, can be measured, is achievable, gets results and is time-bound.

Defining your goals in this way allows workers to achieve their targets and earn those incentives. By letting your employees work towards defined milestones, they will have more control over their performance. This should become the basic framework for your incentive scheme.

Individual or team bonuses

Bonuses can be applied to individual workers, different teams or departments or even company-wide. It all depends on the goals you set out for your incentives.

For individual workers, you might incentivise them to reach personal targets, such as a sales target. For a team, they might have a defined goal that they need to achieve together. And for the entire company, you might want to reward an annual performance for meeting a set target.

Cash and non-cash bonuses

Bonuses don’t always have to be cash incentives, although these are the most typical. But for small businesses that don’t have the budget for substantial financial incentives, some non-cash alternatives can work.

These can include vouchers or pre-paid cards, employee awards that recognise excellent performance (that could also be accompanied by a voucher) or gifts such as electronic devices or a luxury item.

However, for businesses like start-ups, something as simple as verbal praise or a round of coffee for the office can be a great, small incentive to show your appreciation for your employees. What you choose to give will depend on what your business can afford.

How to design your scheme

To keep your incentive scheme consistent, you need to know how it’s going to work. Here’s how you can design your incentive scheme.


Be clear to your workers about the goals of the incentive scheme. Outline what you want to achieve and how they can go about achieving these goals so they can work towards the bonus.


You need to know how the incentive scheme will be implemented. Think about how you’ll be measuring the target you’ve set out, and ensure that it is fair to all your employees and is a workable solution.

Type of incentive

Decide on your incentive. It could be a commission-based scheme, an annual bonus, additional holiday time or a range of non-financial rewards like free coffees or certificates of recognition.


Make sure you know where the funding is coming from for your scheme. Have a meeting with your accountant, and ensure you’re factoring in all the additional costs - but remember that incentive schemes have the potential to boost productivity and increase profits.


Once the scheme is underway, you need to monitor how it is going; how are you going to do this? Check-in meetings can be effective, as can goal tracking or performance managing software.

You also need to decide when the awards will be presented. It could be periodically throughout the year, at the end of the tax year or just before Christmas.


Make sure your employees know your plan so they’re all on board and understand how they can achieve the rewards. This is a crucial step that will incentivise them to work harder to achieve the goals you’ve set out for them.

When planning any kind of productivity bonus scheme, make sure you put the time and planning into the design and implementation. For small businesses, make sure you take into account any tax implications and ensure your employees are appropriately background checked.

A successful productivity bonus scheme will be designed around a company’s finances and projected turnover and future growth. Your scheme should be motivating, fair and reward appropriate workers for all their hard work.

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