6-Step Guide: How to Design a Performance-Driven Employee Bonus Strategy

Increase the performance and productivity of your people.
After surveying >1,500 SMEs between $500k - $230m revenue in SE Asia and working directly with 34 SMEs and Startups since 2018, I discovered 9 out of 10 SMEs don’t have an Employee Bonus Strategy that aligns people to objectives to drive organisational performance.

Instead, I know of an SME who didn’t achieve their annual performance goals, but still paid all employees a 2-month bonus.

What kind of signal do you think this gives their employees?

Especially the poor performers - they are basically telling them to continue doing what they’re doing!

Most SMEs find it challenging to work with their Heads of HR and Finance to develop an Employee Bonus Strategy that meets these 4 criteria:

? Alignment with Company Goals
? Balancing Fairness and Motivation
? Measurement of Performance
? Cultural Fit
Here’s a Bonus Strategy Framework that I have designed that works for nearly all types of businesses and will align your entire team on what matters most.

This is based on my personal experience building a performance-driven organisation that could achieve $300m revenue with just 100 employees.

This bonus strategy that I developed played a big part to contribute to this high level of productivity for a relatively lean team.

This Bonus Strategy has two variables that are based on individual performance and organisational performance.

It ensures your team is rewarded based on achieving organisational goals and performance metrics. This is sustainable year on year, and consequently, this will also reward your top performers what they deserve.

Step 1: Determine Bonus Payout

Replace AWS or 13-month bonus with a performance-driven bonus where every employee gets a bonus based on performance on top of their salary.

Total Compensation = Base Salary + Bonus

Base salary is guaranteed monthly, bonuses are not.

This is how you could split the bonus payout:

Bonus = 50% Organisational Performance + 50% Individual Performance

This aligns with the Playing to Win™ Strategy to Execution framework. Your clients must WIN, your company must WIN, and your employees must WIN too. When all vectors align, all three parties WIN together. This momentum will continue to grow and generate positive outcomes without needing you to drive the team.

To do this, you first need to forecast the budget to allocate as a bonus when your organisational goals are achieved for the year.

The Bonus Plan must be approved by the Managing Director and Board of Directors. This is one example of a Bonus Plan:

• Achieve X Objective + $X profit, pay out 1-2 month bonus
• Achieve Y Objective + $Y profit, pay out 3-4 month bonus
• Achieve Z Objective + $Z profit, pay up to 6 month bonus

For the employee to receive their full bonus, the Company must achieve its Organisational Performance (OKRs), AND the employee must achieve their Individual Performance goals.

Step 2: Grade Organisational Performance

Organisational Performance is graded according to the Company’s top three Objectives for the year.

These must be established at the beginning of the year and must be converted into Specific, Measurable, Achievable, Realistic and Time-bound (S.M.A.R.T.) Objectives to everyone on the team.

Each organisational Objective gets a weightage % based on priority of the year, which is dictated by the Playing to Win™ Strategy.

This allows you to allocate more of the bonus to the most important Objective for the year.

Here’s an example below: