Bonus Programmes

Bonus Programmes

This guidance is for new recruitment businesses. It covers generic issues typically faced by a business placing permanent and temporary staff. It is for information only and is not a substitute for taking detailed legal or other professional advice, since the specific circumstances may affect the interpretation of this guidance.

Introduction

Operating the right bonus or commission structure should motivate your staff in the most appropriate way, to suit their needs and the needs of the business. Get it right and you have happy staff, who feel they are well rewarded for their skills and sales achievements; get it wrong and you could have the exact opposite, with added issues such as in-fighting and overpaying for mediocre achievement.

Some recruitment consultancies do not pay bonus or commission, preferring to reward staff through generous salaries only. The majority, however, do operate bonus/commission, profit share programmes.

There are no set methods of setting these programmes; most recruitment businesses utilise their accountant to help them calculate their own. This guide is designed to give you a flavour of some of the options available.

Clearly define your goals

Ask yourself, what is it you want to achieve from your bonus programme? This will mainly depend on your company culture and the type of roles your staff have; for example, do they work mainly alone or is teamwork important? Are “numbers” the most important factor or does quality come into it? Will everyone have the same bonus structure or will some employees, such as managers, have a different one? Will administrative staff be included in the scheme? Will the scheme reward those finding the vacancies, matching with the candidates or both? How will the sales be allocated, especially if “temporary to permanent”?

Whatever your decision on your bonus scheme, think it through carefully, keep it simple and stick to it (if you start to “tinker”, it sends out the wrong message to your staff). It is also worth remembering that individual bonus targets can be counter-productive, with both candidates and clients being “hoarded” by consultants and not shared with the rest of the team. This can lead to good candidates going to waste and clients waiting longer for vacancies to be filled, unless a strong branch manager is employed to ensure proper allocation of vacancies and candidate matching.

With a branch bonus system incorporating a minimum expectation level from each consultant, teamwork usually becomes the key to success.

Calculate true costs

For each member of staff, the total cost threshold is the salary + on costs + a percentage of the total overhead. Most business owners would add a percentage to this figure for a minimum contribution to profit margin and use this total figure to set the target for sales revenue.

Example:

1. 
   Salary + salary on costs = £25,000
   
2. 
   Annual total overhead divided by number of sales staff = £30,000
   
3. 
   a. + b. = £55,000 + 10% = £60,500 pa
   

Total cost threshold = £60,500 pa or £5,042 per month. Therefore, once your employee has brought in this much revenue, the bonus programme would apply to the excess. It is also worth considering that most recruitment consultancies target their consultants on the minimum amount of revenue they have to bring in, as follows:

• 
  Permanent staff recruitment: X placements, based on average invoice value = target minimum £ revenue
  
• 
  Temporary/contractors recruitment: X workers placed per week x average margin (charge rate less total wage cost) x number of hours/days worked = target minimum £ revenue.
  

Experience of the team should also be brought into account when setting bonus targets. These should always be achievable. It’s never too early to introduce SMART when managing your staff and what better way to demonstrate Specific, Measurable, Achievable, Realistic and Timed objectives, than in a bonus programme?

Write your bonus programme

As stated in the introduction, it is important that your staff bonus programme is designed, not just to motivate your staff in the right way, but also to help you to achieve your business goals. You should also consider:

• 
  When you will pay bonuses (e.g. one month in arrears)
  
• 
  Trainee recruitment consultants (will you guarantee some or all bonuses for a set period?)
  
• 
  Rebates
  
• 
  Internal transfers (i.e. consultants moving from one branch to another)
  
• 
  Split business – between two branches of your organisation or between your organisation and another recruitment consultancy
  
• 
  Bonus during absence (maternity/paternity leave, sickness absence, compassionate leave, jury service, etc)
  
• 
  Internal placements – will your bonus scheme apply?
  
• 
  Leavers (at what point will staff that have left you no longer receive bonus for placements made following their departure?)
  

It is advisable to think of every eventuality from the outset so that alterations are kept to a minimum (people dislike changes being made to their bonuses). However, a statement that the bonus scheme may be subject to change from time to time will cover you for such instances.

The following examples from current REC members illustrate the many variations used.

Company 1: Individual consultant bonus structure

Total threshold = £6,000 per month. Total potential bonus is based on a set percentage of both monthly and quarterly sales revenue that each individual recruitment consultant brings in, as follows:

Monthly sales revenue:		% revenue earned
	Up to £6,000	0
	£6,001–£10,000	10
	£10,001+	15
Quarterly sales:
	£37,500–£45,000	25
	£45,001+	40

Company 2: Team bonus structure

Total threshold is variable and is set quarterly in advance. Total potential monthly bonus is based on the team hitting branch target first, before individual targets/bonuses apply, as follows:

Branch target:

A monthly branch target, comprising permanent and temporary income is set quarterly in advance and once this is achieved, each recruitment consultant receives a fixed sum of money.

Additional bonus:

Once the branch target is achieved, 20% of the excess will be available for additional bonus and divided between the recruitment consultants, based on the percentage of total revenue generated by each individual consultant.

Company 3: Branch bonus structure

Basic bonus:

Branch monthly targets are set annually at the beginning of the sales year and recruitment consultants must achieve a minimum, monthly, individual target in order to qualify for bonus once the branch target is achieved.

Having achieved the branch monthly target all consultants who are over their minimum individual target receive 10% of all contribution over the branch target.

All bonuses are paid monthly in arrears.

Stretch target:

An additional ‘stretch target’ or expectation level can be set as a motivational tool. Each consultant in the team receives a set payment when the branch annual stretch target is exceeded by the branch.

Other motivating schemes

In addition to the more traditional methods of motivating staff, other ways are often utilised with great success, especially where staff entertainment is involved.

As an example of this, one particular recruitment consultancy regularly uses the team bonus to treat the whole branch, including partners or guests of all staff (including support staff), to a special night out or event. This has included trips on the Orient Express, tea at the Ritz, a West End show and then dinner. As the MD says, “Memorable nights that everyone still remembers to this day do wonders for team morale. Money is OK but is soon spent and forgotten!”

Legal considerations

It is extremely important that you take advice when drafting your bonus scheme, as refusing to pay a bonus that is discretionary (or based on criteria other than income earned for the business by the individual in question) to someone who was absent due to pregnancy or disability may amount to unlawful discrimination. The payment of team bonuses needs to be carefully considered so that such individuals are not disadvantaged. For detail, see Section 9.15.