What to Consider when Creating an Executive Bonus Plan
April 29, 2021at4:00 AM
One of the most significant factors for any company’s overall success is its people. If you ever plan on improving your bottom line, you must ensure that you have a staff full of talented and motivated individuals. This is especially true at the executive level. However, in today’s overly competitive market, attracting and retaining the highest levels of talent is often easier said than done.
One solution that many companies are turning to is creating executive bonus plans that reward their employees based on performance. If you want to create one that’s effective at drawing in talent and keeping them within your organization, you’ll need to keep the following considerations in mind.
How to create an effective executive bonus plan.
Find out what motivates your executives.
Many people who are responsible for creating their organization’s executive business plan just assume that cash is always the right choice to motivate their team. However, that’s not always the case. Some people aren’t as motivated by money as others, and an extra influx of cash could even negatively affect an executive’s taxes.
Luckily, there are numerous other rewards you can use in your bonus plan. Whether it’s providing the executives with additional paid time off, hosting a retreat for top performers, or offering shares of the company when specific goals are met, you need to find the strategy that’s best suited for your team. If you’re unsure which one to choose, you can always ask the executives directly and tailor the plan around their responses.
Decide which metric you want to base their success on.
Before you can start rewarding employees based on their success with an executive business plan, you first need to agree on what that term actually means and how you’ll measure it. Are you attempting to reach a particular amount of profit, add more members to your team, reduce expenditures, or something else entirely? The answer to that question is crucial for deciding on a metric.
Some people think it’s better to create multiple metrics since different executives oversee different departments with varying goals. This makes sense in theory, but what often ends up happening is the metrics become so sprawling that they lose their effectiveness at motivating the team. Instead, opt for a single metric that you can apply across the organization.
Understand whether you want a short or long-term executive bonus plan.
Which one you decide on will largely be dependent on the goal of your plan. If the objective is to attract top-level talent quickly, then it’s better to use a program that vests rather quickly. This can include options such as incorporating a sign-on bonus, providing perks like a company car right away, or giving financial incentives for the completion of certain projects.
For companies that have a primary goal of retaining their current executives, it’s often best to opt for longer-term bonus plans. These are incentives that are specifically designed to keep your top performers in-house and to reward them for their continued loyalty. Examples of these types of bonuses include offering more shares of the company the longer they stay with you, cumulative payments that grow year after year, or a sliding rate of paid time off depending on tenure.
Are you considering implementing an executive bonus plan in your organization?
Then make sure it’s crafted to be both economically viable and effective by partnering with the experts here at Ashton Benefits. Our depth and knowledge of our industry allow us to explore many different avenues to reward your team, and we take pride in maintaining an honest approach to each client.
We’ll work with you to understand both your short and long-term goals for your plan, and then our team will use our expertise to design the ideal strategy to help you accomplish them. Learn more about how we can help your business, or you can connect with us online to schedule your initial consultation.
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