HomeBusiness ToolsTeam Collaboration7 Different Types of Employee Bonus Programs for Your Small Business

    7 Different Types of Employee Bonus Programs for Your Small Business

    Does your small business believe in employee bonus programs? Almost three-fourths of companies do. Giving employee bonus allows companies to reward top performers without increasing their fixed costs for salaries. Top-performing businesses are more likely to offer bonuses than the average business (79% vs. 70%). According to a survey, employee bonus programs are becoming more popular, especially among small and mid-sized companies.

    Different Types of Employee Bonus Programs

    Here’s a closer look at the most popular types of employee bonus programs and how to make them work for your business.

    1. Team Incentive Bonuses

    Annual incentive bonuses are the bonus plans examples that are given to individuals or teams that achieve goals set at the beginning of a performance cycle. More than two-thirds of companies use individual bonus incentive plan and 23% use team incentive bonuses. Team incentive programs are best used when group effort is required to lead to a measurable result and individual efforts are difficult to quantify.

    To Create a Motivating Annual Bonus Incentive Plan:

    • Set clear, consistent and measurable goals that are tied to the individual or team’s roles.
    • Employees should understand how their actions relate to the overall goals. Team incentives can cause problems when “moocher” employees who don’t work as hard as their teammates benefit from the group effort. To avoid this, make sure that achieving the goal you set requires the efforts of the entire team.
    Happy smiling employee excited by unexpected bonus in envelope.

    2. Spot Bonus Program or Discretionary Bonus

    If you’ve achieved a major goal or demonstrated exceptional performance, you may qualify for a spot bonus. Alternatively called a discretionary bonus, these can be three- or four-figure bonuses at some companies, and reward performance beyond explication. Usually, managers or executives have discretionary funds with which to reward employees who have made a significant impact on the business.

    These spur-of-the-moment gifts recognize outstanding performance and can be a great motivational tool, especially during difficult times. Note, some employers may also grant spot bonus program in the form of gift cards or additional PTO.

     To Create a Motivating Spot Bonus Program:

    • Create different levels of spot bonuses. You might give out very small rewards, like a $25 gift card, for being the most energetic person in the company trade show booth, on up to $500 or more for a truly above-and-beyond action.
    • Set a budget. Giving out spot bonuses could quickly eat up capital if you don’t set a limit. Create an annual budget for spot bonuses and don’t feel like you have to use it all if you don’t see deserving employees.
    • Make it count. Give spot bonuses for truly exceptional behavior, not just for doing the job.
    • Make it a surprise. If spot bonuses become rote — employees know every week two employees get one — they lose their power to motivate. Keep employees guessing and give spot bonuses irregularly.
    • Publicize it. Part of the reward of a spot bonus is getting singled out in front of your teammates for your work, so make sure you award spot bonuses in front of the rest of the staff. You can also publicize it by sending out a company-wide email or making an announcement.

    3. Referral Bonuses

    Referral bonuses are used by 39% of companies. These bonus incentive plan are offered to employees who refer job candidates who get hired and complete a probationary period with your company. The theory is that birds of a feather flock together and, if someone is referred by a good employee, there’s a strong chance they’re likely to be a good worker themselves.

    Simply put, referral bonuses are for current employees who help recruit a new employee and vary depending on a few factors:

    • Role: Some roles like engineers garner a higher referral bonus for employees
    • Difficulty to Hire: If a company decides that a role is likely to be difficult to fill, they may up the incentive or the bonus.
    • Diversity: Companies like Intel challenge its employees to refer more diverse candidates and rewards employees who refer a woman, underrepresented minority or veteran.

    To Create a Motivating Referral Employee Bonus Programs:

    • Develop a policy. Do you want to offer referral bonuses for every job, or only for certain positions? Do you want to have an ongoing referral program, or just alert employees at specific times you’re looking to hire and ask for referrals then?
    • Determine how you’ll handle payouts. Some companies pay out part of the referral when the employee is hired and the rest after they complete a probationary period of three months or six months. Others give the entire bonus at the completion of the probationary period. Either way, make sure your policy is in writing.
    • Consider offering higher referral bonuses for:
      • Referring candidates who increase staff diversity.
      • Referring candidates who turn out to be high performers.
      • And referring candidates for hard-to-fill jobs or with unique skills.
      • Depending on the difficulty you’re having finding candidates, you could even offer a very small referral bonus (like $25) for referring people who are worth calling in to interview, but don’t get the job in the end.

    Happy Employees Stay!!!

    4. Holiday Bonus

    As the name suggests, a holiday bonus is given out during the winter holiday time and can be a way that a company tries to thank employees for a successful year’s work. Holiday bonuses can be any size and often increase employee productivity, retention and motivation. In many cases, a company will tie a holiday bonus to individual employee performance and may tell you what you did that led to the reward, whether that be taking on a stretch assignment, beating sales goals or exceeding other key performance indicators (KPIs).

    Employee bonus programs
    Happy employees stay!!!

     5. Signing or Hiring Bonuses

    Signing or hiring bonuses (given upon hiring) can attract and motivate new hires — 34% of companies use them. Although they’re less likely to be used by small businesses, signing bonuses might be a good idea if:

    • They are standard in your industry. For instance, signing bonuses are common with IT employees.
    • You need to attract a candidate with hard-to-find skills.
    • You need to motivate a desirable candidate to move from another state.

    For small businesses on a budget, a signing bonus can enable you to land desirable employees at lower starting salaries. Of course, signing bonuses can also backfire if candidates use them to job-hop.

    To prevent this, it’s a good idea to stagger your signing bonus. You might pay half of the bonus at signing, then one-quarter after the employee has worked for six months and the rest at the end of the year. Some companies also institute “clawback” provisions where employees who quit a job before a year is up must return a percentage of the signing bonus.

    However, don’t expect to rely on signing bonuses as your sole attraction and retention tactic. You need a comprehensive plan of employee development to keep these desirable workers motivated and loyal beyond the first year.

    spot bonus program
    Job Advertisement with signing bonus

    6. Retention Bonus

    Retention bonuses reward employees for staying with the company for a long period of time. These are also used to retain high-performing employees especially when there is a hot job market. As employee poaching has increased in recent years, many companies offer retention bonuses to keep employees from jumping ship to a new job.

    Typically a retention bonus is a one-time payment, and many companies prefer these over a salary increase because they may not have the necessary finances in place to commit to a long-term raise.

    bonus incentive plan
    Agreement for employee retention

    7. Profit-Sharing Plans

    Profit-sharing is more popular among small and midsized businesses than their larger counterparts — 22% of small companies use it. These plans give employees a percentage of the company’s quarterly or annual profits. If you have a better-than-usual year, employees benefit. Profit-sharing plans can be tied into your company 401(k) plan, with the profits distributed as contributions to the retirement plan or can be on a cash basis.

    To Create a Motivating Profit-Sharing Plan:

    • Profit-sharing plans tend to be very motivating because they give employees a sense of ownership in the business. Make sure employees understand how the profit-sharing plan works.
    • Set parameters for who can participate. Typically employees must have been with a business at least one year before taking part.

    Profit-sharing plans, especially if tied to 401(k) plans, have specific regulatory requirements, such as keeping certain records, meeting reporting requirements and setting up a trust for the funds. Talk to your accountant or a third-party financial advisor to get assistance.


    Of the many good news you can provide to an employee, none will fetch you a broader smile than an employee bonus pay. The announcement of a bonus is one of the happiest welcome surprises that your workers desire. It is because such rewards display a gesture of much-appreciated hard work.

    For this very reason, giving employees a bonus will earn you a great name within your organization. It will bring dividends in employee loyaltyjob satisfactionemployee net promoter scoreemployee engagement levels.

    Read more: Best 5 Digital Transformation Strategies to Upskill Your Team in 2022

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