Spot Bonus: What It Is and How To Do It Right

Spot Bonus: What It Is and How To Do It Right

Learn how to enrich the employee experience, incentivize desired behaviors, and provide immediate recognition.

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Spot bonuses provide immediate rewards and recognition to employees who shine in their roles, making a significant impact or exceeding expectations.

Think you need to wait for an annual review? With a spot bonus budget, you can show immediate appreciation for a sales rep's efforts, providing fast recognition that boosts morale and encourages long-term productivity.

When your managers have the freedom to reward employees with this type of recognition, it fosters good feelings on both sides. Learn more about how these bonuses can motivate employees - and how to use this type of reward the right way.

What you'll learn:

• What is a spot bonus?
• Examples of spot bonuses
• Benefits of implementing spot bonuses
• Best practices for spot bonuses
• When and how to award spot bonuses
• Potential pitfalls to avoid
• Tools to manage spot bonuses

What is a spot bonus?

A spot bonus is an unexpected reward given to an employee to recognize their special contribution or achievement - especially when going above and beyond their typical responsibilities, like a service agent upselling to existing customers.

These bonuses are often monetary. But unlike other financial incentives such as sales commission, they aren't a formalized part of a compensation plan. Rather, they can be awarded spontaneously throughout the year. Typically, upper-level management gives the bonuses, and mid- to lower-level employees receive them.

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Examples of spot bonuses

The range of financial awards depends on a company's budget, but often varies between $100 to over $5,000. When determining the amount to give, it's wise to consider the awardee's regular paycheck and any other expected bonuses.

The key here is to strike a delicate balance.

You want a bonus to be significant enough to be exciting (and certainly not underwhelming or insulting) without going overboard. For instance, never exceed an employee's annual bonus. If spot bonuses get too enticing, others might start overworking in hopes of receiving one - which can set employees up for a letdown and even lead to burnout.

Keep in mind that these awards don't have to be a temporary bump in someone's paycheck. You can also select the following non-monetary methods to reward employees with spot bonuses:

• Gift cards
• Experiences
• Tickets
• Extra paid time off
• Local weekend getaways
• Vacation packages

You could even create a "Spot Bonus Menu" that offers employees various choices within your budget. While some employees always prefer cash, it doesn't hurt to give them the choice. Whatever you decide to give, avoid the temptation to use branded swag. This may seem like the easiest option, but it won't give the same level of encouragement as the options listed above.

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Benefits of implementing spot bonuses

Spot bonuses can help promote a positive workplace culture, providing a spontaneous way to show employees that they're valued throughout the year. Here are a few more benefits:

• Enhanced employee experience: Awarding these bonuses can increase employee engagement, motivation, and loyalty. When you show someone that you appreciate them, it often increases their job satisfaction and employee retention.
• A way to encourage specific behaviors or attributes: By guiding managers to use spot bonuses for rewarding something specific (e.g., a core value like teamwork or problem solving), you can help them promote the behaviors and attributes that are most valued at your organization. It can be a great performance incentive to foster your desired culture.
• A way to give deserving employees a temporary boost in income: Typically, only sales reps have the power to regularly boost their income beyond their base pay thanks to their sales commission. However, spot bonuses can be given to all employees.
• Instant employee recognition: When managers can give spot bonuses, they don't have to delay their appreciation of outstanding efforts. Instead of waiting for regular bonus periods, they can instantly reward employees. That compounds the impact of the bonus due to its element of surprise.

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Best practices for spot bonuses

While spot bonuses can generate plenty of benefits, they can also come with pitfalls if you don't do them right. Set your spot bonus program up for success with these best practices:

• Develop consistency: Ask HR to document the company's philosophy about the program and to create a rubric for what warrants a spot bonus. If possible, tie spot bonuses to measurable achievements, specific behaviors, or defined company values. HR leaders can also issue guidance on the appropriate award types and amounts.
• Allocate a dedicated budget: While you don't need to widely share your budget and the various spot bonus amounts, ensure that everyone who's in a position to award them is on the same page. Once you determine your starting budget, decide if you need any parameters related to how the total budget will be shared between teams.
• Plan for a way to track your program: To maintain a sense of the unexpected, but still use consistent reasons for awarding spot bonuses fairly, diligently track the rewards your managers give. Train managers to regularly review past spot bonuses given and keep track of future opportunities that might warrant one.
• Train managers: Before launching the reward program, train managers on the criteria, award options, approval process, and any tracking tools. Give them real-life examples of when a spot bonus is deserved, what to give in each case, and how to award it. Finally, train them on the process for getting approval and on any tools your company plans to use for tracking its spot bonus program.
• Communicate transparently: After beginning with clear criteria for managers on what qualifies employees to receive an award, it's important to communicate about the program, including its purpose and process, to all employees. After sharing the information, invite them to ask questions and clarify any confusion.
• Continually assess the program: Regularly look at related data, ensuring awards are spread across teams, levels and job roles, and ask for feedback. Pay attention to what managers have given out. Ask them how it went and if they learned anything that could help you improve the program overall.

Be careful not to diminish the spontaneous nature of spot bonuses. Find a balance between making sure managers use well-understood guidelines for when these awards are earned versus having employees start to expect it.

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When and how to award spot bonuses

Spot bonuses should be unexpected and exciting. They should also maintain a sense of fairness and consistency. Here are some guidelines on when and how to give these awards:

• Soon after someone meets or exceeds expectations, such as surpassing a challenging sales goal.
• As a way to celebrate a demanding accomplishment, such as a person or team completing a long-term, consequential project.
• When an employee embodies the core values or brand, such as above-and-beyond customer service.
• After an employee has represented the brand publicly and in a positive light.
• When an employee has performed work outside their role to help someone else in theirs.
• When recognizing key milestones in an employee's tenure, such as a 5-year or 10-year anniversary.

Most often, a spot bonus works best when it's given privately but goes along with some form of more public recognition.

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Potential pitfalls to avoid

If you don't implement your bonus program correctly, it could yield unintended consequences opposite of what you'd hoped to create, such as lower morale, jealousy among employees, and the tendency to overwork without guaranteed or adequate rewards. Look out for these risks:

• Allowing managers to award spot bonuses for inconsistent levels of achievement.
• Awarding as a consolation rather than for achievement.
• Neglecting to track awards and appearing to show favoritism among teams or individual employees as a result.
• Lacking an efficient system for keeping track of your incentive compensation which creates accounting mayhem.
• Discouraging employees from asking questions or giving feedback about the program, which make it seem unfairly shrouded in secrecy.
• Awards that are too low or too high for the employee's level of achievement.
• Giving bonus amounts that are too high or too low considering an employee's regular compensation.

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Create a spot bonus program that works

Give managers full visibility into your spot bonus program with an incentive compensation management platform. This technology enables managers to track the rewards given to their own team and others, while offering efficient automated tools that streamline accounting and payroll.

These bonuses can be powerful tools for recognizing and motivating employees, leading to higher engagement and productivity. Done right, they can be one more way to create a positive workplace culture and foster company loyalty among employees.

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With eight years of experience as a marketing writer, Sam has explored a wide range of topics including sales and finance best practices, product innovations, and groundbreaking industry trends.