How to Structure a Bonus Program

A solid bonus strategy can build in incentives to reward the right kind of new contracts for your employees and subcontractors

By Karen E. Klein

I'd like to set up a bonus structure for my fund-raising consulting firm that would encourage employees and subcontractors to help bring in business. New clients usually result in a year's contract that can be canceled with a month's notice. We're at a loss as to how to value the increase in revenue and what kind of bonus to give. Would a percentage of the first month's billings be suitable, or should we establish a fixed bonus for any new business, regardless of size? —L.S., Asheville, N.C.

A bonus program can be an effective way to generate additional business through individuals who already know and admire your company and can be given the means to act as an informal sales force for you.

But the key to a solid bonus strategy is to build in incentives that will reward quality contracts and do it fairly for your employees, subcontractors, and your firm.

"Make sure you're rewarding behavior that leads to the attainment of your vision and goals for your business," says Lisa Van Fleet, partner and leader of the employee benefits and compensation practice at the law firm of Bryan Cave in St. Louis. That means identifying what kinds of clients you're looking to bring in and whether your focus should be on constantly signing up new clients or on maintaining long-term relationships with existing clients. If maintaining contracts over time is most important to your business, you might rethink your plan, or give out a second bonus for contracts that endure over some period of time.

The Wrong People

"The danger [of new-client referral bonuses] is that you'll get contracts with clients who aren't an appropriate fit for your services, can't be made happy, are short-term only, or maybe don't pay their bills. If you don't identify for your employees and subcontractors what your objectives are, you might end up with clients who want a two-week relationship rather than a three-year contract," she says.

Along with defining exactly what kinds of new clients you are looking to sign, you'll need to empower your informal sales force, says Mae Lon Ding, a compensation and performance management consultant at Personnel Systems Associates in Anaheim Hills, Calif.

"Train them on how to identify good prospects, approach them, and then make the handoff to the real sales people in the organization. [You'll need a] procedure for documenting the referral and making the introduction," Ding says. "It is also important to let employees know that you are not asking them to push an unwanted service. Tell them that they are approaching prospective customers in a spirit of helpfulness to the potential customer. Tell them that they should not be discouraged when it turns out that some potential customers show a lack of interest."

Give your employees and subcontractors marketing materials that they can use to present your services in both electronic and paper form. "I also recommend that companies announce and celebrate new business that comes from referrals. This keeps the idea fresh in everyone's mind and encourages them that others have been successful, so maybe they can be successful too," Ding says.

Vary It by Size

There are several ways to structure bonus payments, so start with what makes the most sense for your business but evaluate the program and modify it if necessary, Van Fleet says. Jason C. Kovacs, compensation practice leader at WorldatWork, a global human resources association, recommends that bonus pay vary by the size of the contract, be paid out in phases, and be based on actual receipts, rather than billings, since those figures might be at odds given the ability for clients to cancel on a month's notice.

Van Fleet suggests that the bonus should be tied to the actual profit that the contract signifies for your company.

Business Exchange

Track and share business topics across the Web.