Providing bonuses can be a good way to motivate, retain and reward farm employees. Many of today’s farm employers use bonuses, says Dave Resch, Scott County educator with the University of Minnesota Extension Service.
Resch cites a survey funded by Iowa State University’s Leopold Center for Sustainable Agriculture. The survey found that over 43% of employers pay some type of bonus. Most bonuses are based on volume, performance, longevity or profitability.
A volume-based bonus involves a fixed payment per unit of farm output. This works especially well for hog and dairy farms. Employees get additional pay based on pigs weaned, cows milked or acres worked. This system provides employees additional compensation as their workload increases.
A performance-based bonus gives incentives for extra duties associated with increased efficiencies. The employees need to have direct influence in the performance factor for this to work, says Resch. The base efficiency must be defined before the year starts. The efficiency target can’t change during the year. Performance bonuses should be paid as soon as the goal is reached.
A longevity-based bonus recognizes the value of experience and commitment to the farm. This bonus may be tied to a specific number of years or working through a certain season such as harvest. A longevity bonus can overcome problems such as frequent turnover or being shorthanded during critical times.
A profitability-based bonus allows employees to share in some of the risks and rewards of the farm business. This plan is more common for long-time employees. If this bonus is connected to a percentage of net income or profits, the employer must be willing to share financial information with employees.
"A good bonus plan requires employer-employee discussion in advance," says Resch. "If performance or profitability determines the amount of the bonus, both parties must understand and agree on the specifics of the plan. The employer needs to make the expectations and conditions clear to the employee and follow them strictly."
Resch says bonuses are for work above the base workload and expectations, and thus may not be given every year.
Some ways to pay bonuses are in cash, gift certificates, holidays at resorts, use of tools and equipment, or commodities. In the Iowa State survey, bonuses ranged from $500 to about $3,000.