Ed Llarena, Jr.
Owner/ Managing Partner
Human Resource
Employee Retention Specialist

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hai! Can any one tell me how bonus is calulated the formaulae or if possible a simple illustration for understanding purpose . i will be thankful for this kind act .. regards vinay hyderabad
There are many ways of doing it. The most popular are: 1) basic salary based (christmas and mid-year bonuses) and, 2) percentage of basic salary (productivity based).
Salary based bonuses ranges from half month BS to 3 months BS. Percentage based ranges from a low of 0% to 300% depending on program and budget.
In our part of the world, bonuses are annually given by employers towards mid year and at the end of the year (usually christmas and from 0.5 BS to 3.0 BS). This is a way of sharing a company's profits to its employees.
In Japan, they have it also salary based and given twice (Summer & Winter, both 3-months BS ). US companies prefer productivity and performanced based bonuses, although given also at the same time of the year (midyear or christmas time).
Best wishes.
Ed Llarena, Jr.
Managing Partner
Emilla Consulting

Sometimes it is appropriate to pay the same bonus to all employees.
The likes of Semco use this approach rather than a percentage of salary approach, which will inevitably favour high earners.
Paying everyone the same actual amount as a bonus is more equitable.
So you if you were sharing 20% of the profits ($1million) among 100 workers, each would get $2,000.

There are merits and demerits in paying the same amount of bonus to employees. High performers tend to get demotivated when they get the same amount as ordinary and poor performers.
The best strategy that I have seen implemented by companies is this:
1. Same baseline amount for all.
2. Add premium for high performers (PA based).
3. Use of inflation rate as factor in determining minimum bonus to restore employees' purchasing power.
Best wishes.
Ed Llarena, Jr.
Managing Partner
Emilla Consulting

The circumstances will vary enormously from firm to firm.
Some firms stress individual performance while others stress team performance. Neither is right or wrong, what matters is that employees agree with the system adopted.
Performance related pay systems do have considerable problems as the likes of Jeffrey Pfeffer have documented at length.
Equally as you point out high performers expect to receive more than average or poor performers.
Unfortunately, in some instances it can be very difficult to judge individual performance.
Reward strategy is more an art than a science. (As wise reward specialists might be prepared to admit after a few drinks etc)

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