How to...design a great bonus/ commission scheme
Commission and bonus schemes are very much individual to each agency. However, there are still some common factors that are
worth applying to get the most from your consultants.
While there is no industry standard, all commission or bonus schemes have pros and cons for individuals and companies.
Commission schemes are driven by key factors such as company targets/objectives, team culture and salary/package structure. As such, the commission amounts vary considerably.
That said, there are a number of common factors used within recruitment agencies. These are presented in a range of ways, such as commission schemes based on number of temps out, number of billable hours, invoice value, gross profit and new business, as a few examples. These schemes can be on a weekly, monthly, quarterly and even on an annual basis.
Commission is often calculated using percentages, but others use fixed amounts. Both are usually on a sliding scale of thresholds toincentivise the individual to bill more.
Weekly and monthly schemes work well for individuals to quickly realise their extra income, however it leaves the agency or branch
vulnerable to paying out commission on business they may not get paid for or have to credit due to the candidate leaving within the rebate period and so on.
Quarterly schemes are beneficial to the agency, as for the most part commission is only paid after the agency itself has been paid. This can be motivational for individuals who perhaps have a poor month followed by a good month and so on, and can realise larger sums of commission given the longer time frame between payments. In general temps work well with monthly targets and perms work well with quarterly targets.
Some more complex schemes have targets that include extras, which can address some of the ‘cons’. For example:
- targeting the number of temps out is a simple scheme, however it is more productive to have an override commission/bonus to also reward increasing the profit margin, because without it there is a danger of having a lot of temps out at low rates/margins
- in my case, my team has an override built in to ensure our general business makes up at least 70% of our weekly sales, with key account business kept within 30%. This keeps our business extremely safe should any client (through no fault of our own) drop off
- targeting KPIs [key performance indicators] can help to manage your ‘mavericks’ who may be high billers but tend to cut corners in other key areas.
Other incentive schemes include an annual bonus, Christmas bonus in good years, profit sharing and share options,
and in today’s climate, there is many a recruiter working on commission-only schemes.
Commission schemes are quite standard within our industry and if you get it right, individuals will excel and be motivated, while generating a greater income for their company and going the extra mile for their clients and candidates alike.
TOP TIPS
- Ensure your scheme only pays out on profit made/paid invoices. Quarterly commission targets/payments can be an effective way to pay out against paid invoices and credits which are difficult to predict with weekly/monthly schemes.
- Remain consistent. Once your scheme is in place, stick to it. However, make sure you have a contingency plan in place, in the event targets are not being reached.
- Make sure you have clearly defined terms and conditions of the commission scheme in place to set clear expectations from the outset. Keep it simple; many consultants struggle to calculate their commission thus creating negative impact.
- To maximise positive results with ‘teamwork’, consider adding in an extra reward to individuals for ‘all divisions’ achieving target.
- Retrospective schemes work well to motivate in the event of high billings in a week/month/quarter. However, these must work both ways… shortfalls are also carried forward, which in today’s market would de-motivate.
