The Average Bonus Percentage/ What is a good bonus percentage?
The average bonus for employees in the US is 9.6% of salary, according to reliable data from BLS and Gusto.
The typical bonus amount can range from 1% to 15% of an employee’s salary, usually depending on a number of factors such as industry, company performance, and individual or team accomplishments. The average bonus for employees continues to rise over time. In 2020, the average employee bonus was only 8.1%.
Please Note: 9.6% is the average bonus for employees who do receive a bonus and are nonproduction workers. If you factor in the 59% of workers who do not receive any bonus, the average would drop to 4.0% of salary.
How much is usually a good bonus amount to use? And what is the typical bonus size? Read on to find out industry averages and our recommendations for a good bonus size to give your employees.
Average Bonus Percentage by Industry
Bonus percentages vary significantly across industries, with the Financial Industry offering the highest average nonproduction bonus at 12.3%, contrasted with 3.9% in the Educational and Health Services sector.
What is a good bonus percentage?
Average Overall Bonus Percentage by Industry
| Industry | Average Bonus (% of Salary) |
|---|---|
| Finance | 12.3% |
| Professional/Business Services | 9.2% |
| Information | 8.9% |
| Manufacturing | 7.5% |
| Trade, Transport, and Utilities | 6.6% |
| Leisure and Hospitality | 5.1% |
| Construction | 4.4% |
| Education and Health | 4.0% |
| Other | 3.9% |
Source: BLS
Average Year-End Bonus by Industry
| Industry | Average Bonus (% of Salary) |
|---|---|
| Finance | 11.7% |
| Legal | 5.0% |
| Consulting | 4.9% |
| Real Estate | 4.4% |
| Arts & Entertainment | 4.3% |
| Communications | 4.1% |
| Technology | 4.0% |
| Accounting | 3.5% |
| Construction | 2.9% |
| Insurance | 2.8% |
| Retail | 2.5% |
| Manufacturing | 2.5% |
| Automotive | 1.9% |
| Education | 1.7% |
| Transportation | 1.5% |
| Facilities | 1.5% |
| Healthcare & Social Assistance | 1.1% |
| Food & Beverage | 0.9% |
| Salon & Spa | 0.7% |
Source: Gusto
Average Bonuses Year-Over-Year Change
| Year | % of Salary | Workers with Bonus |
|---|---|---|
| 2022 | 9.6% | 41.0% |
| 2021 | 9.0% | 40.5% |
| 2020 | 8.1% | 40.0% |
Source: BLS
Note: The data above includes bonuses such as year-end bonuses, referral bonuses, and performance-based incentives and is considered “nonproduction” bonuses (not directly linked to production output).
Why Bonus Percentages Vary by Industry
The typical bonus percentage and size can vary significantly depending on the industry. In sectors such as finance and technology, where competition for talent is fierce, the typical bonus amount tends to be more substantial. For instance, in the finance industry, annual bonuses can often exceed 30% of base salaries, reflecting the high-pressure and performance-driven nature of the field. Similarly, in technology companies, where stock options are frequently part of compensation packages, the typical bonus amount is lower, but usually supplemented with equity incentives.
On the other hand, industries like retail and hospitality typically offer lower bonus percentages due to tighter profit margins and seasonal fluctuations. In these sectors, bonuses typically range from 2% to 8% of annual earnings. Additionally, in industries with strong union representation, such as manufacturing and transportation, bonus structures may be negotiated collectively, leading to more standardized bonus percentages across companies within the industry.
Key Factors that Influence Industry Variations in Bonus Amounts:
- Sector profitability: Industries with higher profit margins, such as finance and healthcare, can afford to offer more generous bonuses to attract and retain top talent.
- Competition: Intense competition for skilled workers within certain sectors drives up bonus percentages as companies vie to secure the best employees. This is particularly evident in fields like technology and consulting.
- Economic conditions: Economic downturns can impact bonus structures across industries. During periods of recession, companies may reduce bonus payouts or shift towards performance-based incentives to conserve resources.
- Regulatory environment: Regulatory requirements, such as those imposed by government agencies or industry watchdogs, can also influence bonus practices. For instance, in highly regulated industries like banking, bonus structures may be subject to strict oversight to ensure alignment with regulatory standards and corporate governance principles.
What is a good bonus percentage?
At Plentive, we advocate for a strategy that progressively increases bonus potential as business performance improves, ensuring alignment with organizational goals and employee contributions.
How much bonus percentage should you give your employees?
The amount of bonus that we recommend you should use depends on your company’s situation.
Scenario #1: Company Currently Not Offering Bonuses
If your company is not currently offering bonuses, it’s essential to take a staged approach to introducing them.
Start by offering a lower percentage of salary as a bonus, perhaps around 2-3%, to initiate the incentive structure. Over the next two years, gradually increase the bonus percentage, aiming to reach at least the average bonus for your industry.
For example, if the average nonproduction bonus for your industry is 9.6%, consider increasing the bonus percentage by 2-3% each year until you reach that benchmark. This staged approach allows your company to ease into bonus offerings while aligning with industry standards.
By implementing Plentive’s automated incentive dashboard, you can track the progress of your bonus program and adjust bonus percentages accordingly based on performance metrics and company growth.
Scenario #2: Company Offering Below Average Bonuses
If your company currently offers bonuses that are well below the industry average and lack impact on employees, it’s crucial to reassess and revamp your bonus structure.
Consider increasing the bonus percentage to match or exceed the industry average, ensuring that bonuses become meaningful incentives for employees. Additionally, tie bonuses more closely to performance metrics to enhance their impact and effectiveness. For instance, link bonuses to individual or team achievements, sales targets, or project milestones.
By utilizing Plentive’s automated incentive dashboard, you can seamlessly integrate performance metrics into your bonus program, providing clear goals and transparent tracking for employees. This alignment between bonuses and performance fosters motivation and drives employee engagement.
Scenario #3: Company Offering Average Bonuses with Limited Impact
If your company’s bonuses are near the industry average but lack meaningful incentives, it’s essential to enhance their effectiveness by tying them more closely to performance. Shift towards a performance-based bonus structure where bonuses are directly linked to individual or team achievements.
For example, instead of providing flat year-end bonuses, offer bonuses based on meeting or exceeding specific performance goals, such as sales targets or project completion rates.
Implementing Plentive’s automated incentive dashboard enables real-time tracking of performance metrics and provides employees with visibility into their progress towards bonus attainment. This transparent approach empowers employees to actively work towards bonus incentives, leading to increased motivation and productivity.
In all scenarios, leveraging Plentive’s automation capabilities and incentive dashboard is instrumental in making bonus programs more engaging and meaningful for employees. By aligning bonuses with performance metrics, companies can maximize the impact of their investment in employees and drive overall organizational success.
Impact of Company Performance on Bonuses
- Financial Health and Profitability: Assessing a company’s financial health and profitability directly impacts bonus percentages. Consider using the rule of thirds as a starting point:
- The “Rule of Thirds” outlines a principle for allocating profits among owners, employees, and reinvestment into the company. This approach advocates dividing annual profits into three equal parts: one-third for owners, one-third for employees (in the form of bonuses), and one-third for reinvestment to support company growth and development.
- Calculating Average Bonus Targets: Within budget constraints, companies can calculate average bonus targets by dividing one-third of annual profits by the total number of bonus-eligible employees.
- Adjusting Bonus Amounts Based on Business Performance: Bonus amounts should be adjusted based on business performance to maintain financial sustainability.
- Business Growth or Decline: The trajectory of company growth or decline significantly influences bonus allocation. During periods of growth, bonuses may be more generous to incentivize and celebrate achievements. Conversely, during downturns, bonus percentages may be adjusted to manage costs and maintain financial stability. Monitoring performance metrics such as revenue, profit margins, and market share helps determine appropriate bonus allocations that align with the company’s financial objectives.
Impact of Individual and Team Performance on Bonuses
Individual performance factors to consider when determining bonus amounts:
- Performance Metrics: Setting clear and measurable performance metrics is crucial for determining individual and team bonuses. Establishing specific objectives and key performance indicators (KPIs) ensures employees understand expectations and enables fair assessment of their contributions to organizational goals. Metrics should align with company strategies, encompassing both quantitative and qualitative aspects of performance. Transparent expectations help link bonus allocations directly to employee achievements.
- Recognition of Individual and Collective Contributions: Effective bonus structures acknowledge both individual and collective contributions to organizational success. While individual metrics highlight personal achievements and productivity, team-based metrics recognize collaboration and synergy among team members. This balanced approach fosters a culture of cooperation, incentivizing employees to pursue shared goals. Recognizing and rewarding collective achievements reinforces the importance of teamwork, encouraging effective collaboration towards organizational objectives.
Setting Bonuses
Setting the right bonus percentage for employees is a crucial decision that requires careful consideration of various factors. By taking into account industry impacts, company performance, team dynamics, and individual contributions, businesses can establish bonus structures that motivate employees and drive organizational success.
- Industry Impacts: Consider industry-specific factors such as competition, profitability, and market trends. Evaluate typical bonus ranges in your industry and adjust accordingly to remain competitive in attracting and retaining top talent.
- Company Performance: Assess the financial health, growth trajectory, and strategic objectives of your company. Align bonus percentages with company performance metrics such as revenue, profitability, and market share to ensure that bonus payouts reflect the company’s success and sustainability.
- Team Performance: Evaluate the collective achievements and collaboration within teams. Recognize and reward teamwork, communication, and synergy among team members. Consider team-based performance metrics and achievements when determining bonus percentages to foster a culture of cooperation and mutual support.
- Individual Performance: Acknowledge individual contributions, achievements, and skillsets. Set clear performance expectations and metrics aligned with organizational goals. Recognize individual excellence, innovation, and leadership qualities when determining bonus percentages to incentivize and retain top performers.
Bonus percentage Calculator
In our years of calculating bonus percentages we have found that companies use a bonus percentage calculator. Our software is a great big bonus calculator that offers, typing it in with performance, goals, and so much more. If you want to try a sample of it out head to our product tour, or download anyone of our bonus calculation excel spreadsheets here.
Checklist: Are you paying enough in bonuses?
- What are the typical bonus ranges in our industry?
- How does our company perform with respect to others in our region and industry?
- How did this employee’s team perform within our company?
- Are employee and team performance expectations and metrics clearly defined and aligned with organizational goals?
- How did this employee perform within his role?
- Will the bonus percentages offered incentivize and motivate employees to drive performance and contribute to our company’s success?
By considering these factors and asking the right questions, businesses can ensure that their bonus percentages are fair, transparent, and aligned with their strategic objectives, fostering employee engagement, loyalty, and performance.
At Plentive, we understand the intricacies involved in designing and implementing effective incentive plans that drive employee motivation and align with organizational objectives. Our team of experts specializes in crafting tailored solutions that meet the unique needs of each client.
By leveraging our industry expertise and comprehensive understanding of compensation practices, we help companies navigate the complexities of bonus allocation and performance management. Whether it’s designing bonus structures that reflect industry standards, optimizing team dynamics for maximum collaboration and productivity, or recognizing individual contributions to foster a culture of excellence, our consultants are committed to delivering results.
With Plentive’s guidance, companies can stay competitive in their industry by attracting, retaining, and incentivizing top talent while achieving their business goals with confidence. Consider implementing a bonus letter when rewarding your employees for full transparency. Let us partner with you to unlock the full potential of your incentive plans and drive sustainable success.
