Bonus systems must be designed as a win/win/win—a win for the team member, a win for the boss, and a win for the client. For your team, a bonus must be clear, achievable, and based on factors they can influence. For the firm, the bonus system should improve profits, reduce costs, or save time. And for the client, it should enhance the level of service they receive while helping them meet their goals. Bonus systems can be tricky to create, often getting stuck in the planning phase and leading to resentment. Here’s how to design a clear and effective bonus system that works for everyone.
Key Areas to Clarify in Your Bonus System
1. Direct vs. Indirect Referral Bonuses
It’s easy to identify a direct referral—if a team member refers Joe Smith, and Joe brings in a client, that’s direct. But what if Joe’s client refers someone else, like their neighbor, Mrs. Jones? We recommend classifying this as an indirect referral, still worthy of a bonus but at a lower rate. Clarity on this point prevents disputes and keeps expectations clear.
2. Ongoing Referrals and Repeat Business
One of the most common areas of confusion in a bonus system is how to handle ongoing referrals or repeat business. What happens when a client refers their child or when the firm handles their estate administration years after the initial referral? Should the original referrer still receive credit?
To avoid contention:
- Define how additional business is handled. Does repeat business qualify for a bonus at a lower rate, or is it treated as a new lead?
- Set time limits. For example, if a referral leads to new business within two years, the original bonus rate applies. After two years, the bonus may decrease.
3. Frequency of Bonus Payouts
How often should bonuses be paid—monthly, quarterly, or annually? Quarterly payouts tend to strike the right balance, giving enough time to see results without making employees wait too long.
4. Timing of Bonus Payouts: Full Payment vs. Engagement
Bonuses can be paid when the firm is fully paid by the client or at the time of engagement. We recommend paying the bonus only after the firm receives full payment. This ensures the system benefits the firm’s cash flow as well.
5. Credit Card Fees and Processing Charges
If a client pays by credit card, does the bonus reflect the full payment amount or the net amount after processing fees? Be sure to clarify whether bonuses are based on gross or net revenue to prevent misunderstandings.
6. Bonuses After Separation from the Firm
If an employee leaves the firm, should they still receive any bonuses earned but not yet paid? Clearly define in writing whether bonuses are reserved for current employees or if former employees are entitled to unpaid bonuses.
7. Flexibility for Future Adjustments
Finally, include a clause that allows for adjustments. “Both parties agree the bonus system can be modified as needed and put in writing.” This gives you the flexibility to evolve the system as business needs change.
Commitment to a Flexible and Effective Bonus System
Creating a successful bonus system requires feedback and flexibility. Both parties should commit to reviewing the system after 90 days and making adjustments as needed. Often, the most productive bonus systems are a few tweaks away from perfection.
If you’re ready to learn how to empower your team and create an effective bonus system, join our next book club tele-series starting January 10th. There’s only room for one more firm, so don’t wait!
For more insights into building effective bonus systems, explore our free resources at fire.h50.us/~hrgnmpwr/dev2/.
