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Staff reward systems – is a bonus an incentive?

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Money is important. A bonus is designed to reward staff for good performance and should be used strategically by an SME leader as a motivational tool. A bonus is part of extrinsic motivation, coming from outside the employee, and if used properly as part of a holistic approach to compensation and benefits can be powerful for employee engagement.

It can be tricky to decide how big, or small, a bonus should be, how to calculate it and how to justify it to the individual and the other staff members. A traditional way to look at a bonus is whether an individual’s performance has met expectations, or not. Other ways to look at a bonus are from the point of view of motivation.

Extrinsic motivation

If an employee is motivated to work for the sake of a promotion, recognition or size of bonus then an SME owner should emphasize extrinsic rewards. These are the physical ones that come from an external source (employers) only. A properly designed extrinsic reward can create an emotional link with your employees if they value such rewards.

An extrinsic reward is also directly related to job performance of the employees but it is necessary that employees receive reward every time they accomplish the task. It also depends upon the policy of the company.

Examples of extrinsic rewards are:


Many employees would like to be well-paid. For an SME this may be more challenging than in a large MNC and especially for start-ups cautious of costs and cash flow. An SME can design a suitable payment structure for its employees as the reward for contributing to achieving the organization’s goals.


When an SME earns good profits due to the effort of an individual or team of employees, the company should appreciate their contribution by giving them additional payments as a bonus. Financial rewards are generally recognised as receiving more value from the employees.

Fringe benefits

Fringe benefits are extras provided to employees in addition to their salary. They can be a company’s car, free life/health insurance, employee discount scheme, pension plan, or an expense account.

Improved working conditions

Work is an important part of life for everyone providing discipline and meaning to the individual. An employee spends a lot of time in the workplace so an SME must acknowledge contributions and reward its employees by providing an appropriate working environment; latest models of computers and an atmosphere of respect and trust.


Not everyone is or wants to be a star, some employees are average performers. Some employees are intensely hard working, as a result of which they make huge contributions to the company’s well-being. Such employees can be rewarded through promotion or giving them new responsibilities.

Profit sharing

Profit sharing is not very common in SMEs but employees are creditable for the organization’s progress or success as much as the employers are so a responsible company should consider rewarding its employees by sharing the profits.

Intrinsic motivation

An employee who has a high level of intrinsic motivation may not pay too much attention to a bonus or its size. Millennials have recently been described as employees who value experiences over financial rewards. If you love your job then money is not a big issue so long as you can earn a living. Giving a small bonus to such an employee may be acceptable to them, depending on their performance as well as other factors.

Intrinsic rewards are non-physical rewards; they cannot be seen or touched but are emotionally connected to the employees. Intrinsic rewards can be defined as the contentment an employee finds by going to work. Intrinsic reward is directly related to job performance as a successful task automatically produces it. The higher the success rate, the higher will be the rate of intrinsic rewards an employee receives.

Different employees have different perceptions and just as with extrinsic rewards there are various forms of intrinsic rewards.

Examples of intrinsic rewards are;

Sense of achievement

It takes lots of effort, skill and sometimes even courage to perform any task and there is no better feeling than the joy of seeing your hard work pay off.

Praise from superiors

Employees often become happier, momentarily, when their seniors or supervisors say a few words of appreciation for them in private or in front of peers or co-workers.


Many employees would like to be renowned in the place where they work. It is rewarding for employees when they are recognized by co-workers and other members of the company for the good work they’ve done.

Taking pride in your work

Some employees may try to dodge the blame when a mistake is made or a job is badly done, they may also put their name on other employees successful results. SME staff should feel proud of themselves when the work is very well done and such feelings of pride can be vital in motivating them to keep going and to get even better results.

Autonomy at work

When employees continue to get good results, supervisors may make less effort to manage them. Giving employees the freedom to make their own decisions and determine their own schedule is also a form of intrinsic reward.

A well-designed reward system motivates employees and helps in building positive emotional responses towards the job, the management and even your SME brand. It also leads to better performance by employees which have direct impact on the productivity of the SME. If you think you need guidance on how to set bonuses for employees take a leaf out of John Lewis. The UK MNC that is renowned for involving their employees in their business. Charlie Mayfield Chair of John Lewis explained at a recent conference that in their latest board meeting they spent 20 minutes discussing the numbers and 3 hours discussing people and how to motivate them and help them feel valued. So if you want to be a successful SME leader why don’t you start spending five times more time focusing on people as you do on your financials? You may find this is a good way to set bonuses and use them effectively as incentives.

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