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After looking at the end-of-year sales figures, how should I determine bonuses for my staff?

How should a wise business person work out the bonuses for the staff? What other costs should a business set aside before bonuses are worked out (i.e operating cost for the new financial year)?
Penny Morey answered January 19, 2008
URL: http://www.entrepreneur.com/answer/221271
I think that your question is not how to determine how much each person receives as a bonus but rather how much the bonus “pot” should be that you ultimately divide up based on each individual’s achievements against
goals, regular job performance, attendance, length of service, and/or whatever other factors that you want to include and the contributions you wish to reward.

If you intend to give out discretionary bonuses, you should budget at the beginning of the fiscal period for what you think that you will be able to afford just as you do for other compensation factors:salaries, overtime, and benefits.

Most companies base the amount of money set aside for bonuses on profitability.In fact, many enterprises refer to their bonus program as “profit sharing." If the company does not make a profit, no bonuses are given. If the company makes a profit, a percentage of the profit goes into the bonus “pot” to be applied in an organized, pre-determined way to reward the people who were most instrumental in the company actually succeeding and being profitable in the preceding period.

In start-up and rapid growth situations, there may be unprofitable periods and the company may still need/want to give discretionary incentives such as bonuses in order to reward and retain the best talent. In this kind of situation, the chief financial officer will need to calculate a bonus pool as a percentage of the overall direct compensation that the company can afford to pay out and remain financially sound.

Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.