Most companies get bonus programs wrong. They either fail to drive the right behaviors or confuse employees so much that bonuses become meaningless. Some companies even waste valuable budget on programs that just become an entitlement.

The reality is that implementing a company-wide bonus program may not be right for every organization — many pre-IPO companies successfully operate without them, focusing instead on equity compensation and base salary adjustments.

But when done right, bonuses can be powerful tools. Unlike equity, which incentivizes long-term retention and future growth, bonuses are short-term incentives designed to reward contributions within the year. Since compensation drives behavior, every dollar should reinforce the actions you want to see.

Who Should Be Eligible for a Bonus Program?

Not every company is ready for a company-wide bonus plan. The right approach depends on your stage, culture, and financial readiness. You also need established company goals that won’t change drastically by year-end.

Phased Eligibility Approaches

Many growing companies start with bonuses for executives, sales, and customer success, then expand to the broader organization as they mature. This phased approach allows you to refine your program before scaling it.

Eligibility by Job Level

If a company does decide to implement a bonus program across the organization, eligibility often varies by job level. For example:

• Executives may receive higher percentages tied to company results.
• Customer-facing roles may have bonuses tied to revenue or customer retention.
• Broader employee groups can be added as financial maturity grows.

Designing Your Bonus Payout Structure

A strong bonus program balances company success with individual performance. Here’s a proven approach to structuring payouts.

Step 1: Establish the Bonus Pool

Set your bonus pool (budget) based on company performance against key objectives, typically annual revenue.

For example, if you hit 90% of your revenue target:

• Add up all eligible employees’ target bonuses (say that totals $1M).
• Multiply by 90% → $900K available to distribute.

Key elements to define:

• Threshold: No payout unless you hit a minimum performance level (e.g., 80% of revenue target).
• Cap: Maximum funding level to maintain financial discipline (e.g., 115% of target bonuses).

Step 2: Differentiate by Performance

Once you’ve set the pool, differentiate payouts based on individual or team performance ratings.

Example payout tiers:

• Rating 1–2: No bonus
• Rating 3: 90% of target bonus
• Rating 4: 100% of target bonus
• Rating 5: 115% of target bonus

Scenario Example:
If the company hits 90% of its revenue target, and total target bonuses equal $1M, your available pool is $900K.

• An employee with a $10K target bonus and a rating of 3 would receive $9K.

Step 3: Model Scenarios

Before launching, model outcomes using actual employee data. Run affordability checks to ensure payouts stay within your pool based on employees’ performance distribution.

This method rewards high performers while keeping total payouts in line with company results.

Payout Timing: Annual vs. Sales Roles

For most roles, annual payouts work best. They align with financial cycles and are scalable.

Sales roles are the exception — shorter payout cycles keep incentives directly tied to pipeline and quota achievement.

Communication Is Everything

The success of any bonus program depends on clear communication. Employees need to understand not just whether they’re eligible, but exactly how payouts are determined.

Create a formal bonus plan document that covers:

• Eligibility criteria
• How goals are defined and measured
• Payout calculations with examples
• Key provisions like thresholds and caps

Distribute this to all eligible employees and make it easily accessible.

Getting It Right: Designing a Bonus Program That Motivates

A well-designed bonus program does more than reward past performance. It motivates employees, reinforces your culture, and aligns individual efforts with business goals.

The key is keeping it simple, fair, and directly tied to outcomes that matter.

👉 Ready to build a bonus program that drives results? Connect with us at [email protected] to see how Kamsa can help you design a fair, scalable program that works for your stage and goals.