![]() The metrics and tools described above – Historical Baseline and What-If Analysis – are essential for that can help in budgeting for bonuses. ![]() What if you budget for a bonus that may not occur? Or what if you fail to budget for a bonus that does occur. While bonuses have potential for increasing performance and raising revenues they present a budgeting conundrum. Over time, this practice creates a more dependable historical baseline that will allow managers to properly project and analyze their compensation plans. What is the optimal payout dispersion? How to ensure the top performers are paid the highest and the low performers less?Ī robust dataset is also useful for conducting What-If Analysis by examining different scenarios and the potential benefits, payouts and growth that may be realized from certain incentive plans. What are your compensation costs? How much are you spending to generate your revenues? What is your overall payout for incentives such as bonuses? The baseline can uncover questions such as: ![]() The historical baseline can also be used to assess the effectiveness of various incentive compensation plans and to what degree they can be realistically expected to increase performance. The historical baseline can be used to estimate the likelihood that the organization will reach the bonus targets, and if so, by what degree. Once a company has a long-term dependable dataset of its performance, it can establish a historical baseline of incentive targets and bonus payouts. What Metrics Help in Planning Incentive Compensation & Bonus Structure? There are some key metrics and tools to help companies with their forecasting exercises. The starting point for planning incentive compensation and bonus structure is to forecast future performance. Consequently, the financial management of incentive compensation plans and bonuses is a complex process of forecasting, accruing and budgeting. They must be factored into the financial planning of your company’s ongoing performance and its future growth. At the end of period, some sales reps, products or territories will meet their targets, while others will not.īonus payments are real dollars. Enterprise organizations have sales forces with hundreds or thousands of members, a diverse range of product lines, and a broad array of territories, each with its own priorities and activities. These variables are even further complicated by the size and complexity of today’s organizations. How will increased revenue translate into bonus payments?Īre the bonuses working? In other words, how much are we paying for these additional revenues? If so, how much revenue will you generate? Will employees and teams achieve their bonus targets? Planning for bonuses can be complicated by many variables: It demands detailed financial planning around how performance may drive company revenues and how bonus payouts will impact the bottom line. Properly designing and implementing a bonus compensation structure requires looking to the future. Performance bonuses create alignment - connecting individual and team goals with the organization’s overall objectives. For companies in all industries, incentive compensation and bonus structures are valuable tools for enhancing performance and meeting company goals.
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