Commission and bonuses are both performance related payments made by an employer to employees on top of basic wages or salaries. Commission is generally paid to an individual, team or department within your business, most commonly as a reward for good performance and the achievement of success in relation to sales or turnover. A bonus is more likely to be paid based on achievements in the performance of your business over a certain period of time, commonly as an annual or seasonal award.
Both commission and bonuses can be planned for and linked to performance targets within your business, where these can help to increase levels of loyalty and motivation levels in employees, embedded in their hopes and expectations. However in some enterprises, usually small businesses, the practice or tradition of commission and bonuses may not be in the business plan, but in the gift of the owner or manager and dependent upon how they feel at the gifting time! Here, the hopes and expectations of staff and workers for commission or bonuses might be less manageable, less clear and less motivational for the employees.
Failure to gain commission or a bonus within a planned business strategy, provided that payment by success is realistically achievable, is more likely to be owned by the employee, whereas the failure to gift a commission or bonus based upon employer generosity alone, might well be more de-motivating and blamed on employer mean-spiritedness.
The status of commissions and bonuses can vary in relation to pay and conditions of employment. Both can be part of a planned, negotiated and agreed contract of employment, in simplest terms becoming a welcome addition to a regular pay package. A commission or bonus fails to have motivational value, as an incentive, if it becomes mainstreamed within regular pay. If or when this happens, it could prompt a re-setting of performance targets and rewards - the potential for managed flexibility in any incentive scheme is helpful to the business. The effects of commission or bonuses, paid or not paid at a whim, are generally unpredictable!
However commission or bonuses are organised to be paid, as cash or as shares, employees need to easily understand the targets and demands that govern their award - the system should be simple! Don't waste time negotiating complex payments, keep the calculations as straightforward and as clear as possible. Determine what part commissions and bonuses will play as part of the overall pay package being offered. These can vary from commission only, commission plus salary, commission plus bonus or commission plus salary plus bonus and can be related to individual or company performance. Finally, if planning to pay commissions or bonuses, be sure to check with HMRC or your accountant, what the tax, NI and tax credit implications might be of doing so!