Bonuses motivate employees to raise their performance to meet business goals. You might want your employees to lower production costs, for example, or eliminate waste in the materials they use. You might give cash or non-cash bonuses as incentives. Employees earn rewards for special achievements, improving productivity and raising profits. Bonuses can serve as an important tool for small businesses, which have smaller staffs and a smaller reservoir of talent than larger firms, helping ensure employee loyalty and reducing turnover.

Non-monetary Bonuses

Employee bonuses aren't necessarily all cash awards. Non-monetary bonuses might instead reward employees with gift certificates, theater tickets, trophies or time off.

Profitability-based Bonuses

Profitability-based programs offer employees bonuses when profits reach a targeted level. Companies award bonuses only if the target is met, regardless of the increase in employee productivity. Employees still must meet their goals and maintain productivity.

Sales Share Bonus

Companies offer employees a set percentage or dollar amount of additional sales in a sales-share bonus program. The idea is to give employees a goal that’s strong enough to motivate them but not impossible to achieve.

Referral Bonus

Referral programs award bonuses to employees who recommend job candidates. Companies reward them only if their candidates are hired. The notion behind the program is that loyal employees are likely to refer reliable job candidates.

Spot Bonuses

Companies use spot bonuses to recognize employees for special achievements or for performing beyond their duties. Rewards usually start at $50. Your supervisors or higher-ups present these awards to deserving employees. Spot bonuses get their name from being presented at any time, or “on the spot.”

Mission Bonuses

Mission bonuses reward employee teams for reaching a production milestone. Your employees might have completed a major project weeks before the deadline or surpassed a challenging goal that you set for them. Mission bonuses also are called milestone or task bonuses.

Innovation Bonuses

Bonus programs often reward employees for their creativity. Companies offer employees fixed bonuses for developing new products or procedures that are expected to raise profits. Your investment is in promoting innovation. You and your employees are rewarded if you’re profitable.


Once you pick a bonus plan, clearly state who’s eligible. Is it only for managers or all staff? Decide on the bonus amount and whether it’s an across-the-board, fixed-dollar amount or a percentage of employees’ wages. Also decide when to award bonuses. Companies favor end-of-year bonuses to coincide with end-of-year federal, state, municipal, FICA and Social Security payroll deductions.

Poorly communicated bonus plans seldom motivate employees. Employees often view programs they don’t understand as suspicious. Put your plan in writing with clear statements on who’s eligible, what the bonus pays and when it’s awarded.