Basic bonus levels

The right bonus level depends on the organization and its goals. The mature organizations are always less aggressive and the bonuses paid to employees are pretty low and stable and they depend more on the net profit generated by the organization than the individual results of the employees.

The organizations makes a lot of mistakes in setting the correct basic level of bonuses. They believe, the bonuses are the retention tool and they try to set the basic level of bonuses high enough to support employees to wait for the bonus. The employees feel kept in the trap as they always realize a huge financial loss, when they leave the employer. On the other hand, the competitors on the job market know this practice and they can provide the sign-on bonus to employees, they want to hire.

The bonuses are not a good HR tool and compensation component to allow employees to get a market salary. The bonuses are paid for the performance, it is not a postponed base salary, released once a year. The organization has to distinguish between two main compensation components - base salary and bonuses as they roles are completely different. Making the mixture brings a lot of pain and dissatisfaction to the organization in the near future.

Finally, the organization has to share the risks between the employee and itself. The organization cannot punish employees for not meeting the overall business goals. The organization has to set the fair split between the fixed and variable part of the salary as the employees can feel at least the basic level of the satisfaction, which does not push them to ruin their personal reserves, when the bonuses are not paid.

The basic bonus level should be fair to employees, the bonus has to be a nice extra, it cannot become a significant part of the personal income as it can destroy the whole organization, when the bonus should not be paid (due the serious and deep financial troubles of the organization). The bonus should motivate employees to reach their goals or it should support their motivation. Setting the bonus too high will not improve the performance, it will make the employees to make their personal reports and statistics tricky.