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Employee bonuses: Milestone or project bonus plans

Project bonuses, also called milestone bonuses, focus employees on critical deadlines. Project bonus plans, due to their high-profile nature, are usually well-communicated and well-defined, running over the short term (three to six months).

Project bonus plans typically involve senior management, and comprise:

  • Stretch goals and/or accelerated payouts
  • Quality goals as the measures
  • Generous cash incentives
  • Frequent status meetings

Growing popularity of project bonus plans

Historically, milestone or project bonuses were found in the information technology (IT) industry and other technical fields. Today, project work has become a common method for many industries.

The project manager role has become a critical role in an organization. As this transition takes place, more organizations are adding milestone-based incentives to their compensation package.

These bonus opportunities are not replacing more traditional forms of variable compensation, such as special recognition programs or group incentives, but rather are being added to complement to existing compensation plans.

Project bonuses as team motivation

Project bonuses are growing popular to motivate teams. Bonus payments are typically targeted at up to 20% of the employee’s total compensation related to a specific project, and generally run over the short term (three to six months).

Using SMART objectives with project bonus plans

By defining SMART objectives for the project, with fixed bonus amounts based on the importance of an individual’s role in the project, bonuses can be paid based on the success of the project and the overall quality of the results.

Since the goals will be specific and generally quantitative, it will be clear whether the desired results of the project are achieved. This facilitates a unified team effort to work toward specific goals.

What does the bonus look like?
  • A company offers an employee the opportunity to earn an extra set dollar amount or a percentage of their salary if they achieve specific outcomes assigned by the company
When should it be used?
  • To incent an employee to achieve specific goals that will progress the business
  • Can be used on an ongoing annual basis or as a one-time chance to share in the success of a key business milestone
Benefits
  • Focuses employees clearly on adding value—doing what needs to be done in the business
  • Makes clear to employees in advance what to do to earn their reward
  • Allows the organization to define and control the maximum amounts paid
Risks
  • If objectives are not properly set or assessed, the organization may not get value for money
  • The program requires budgeting and monitoring throughout the year
  • Not all employees care about bonuses—they are simply not motivated by them

The project bonus as a retention strategy

The project bonus is a type of performance bonus with a targeted audience and specific and highly monitored goals. Project bonuses also wields a retention component, as it will keep the employee focused until they achieve the project goals.Often, organizations will gear bonus payments toward the end of the project timeline to give employees extra motivation to see the project through to completion.