Should your company start a spot bonus program?

What is a spot bonus?

As the term suggests, a spot bonus is a reward that is given on the spot. It's not part of the employee's base pay and is not on their compensation schedule. Company leaders, including HR, usually decide the spot bonus program budget, then managers or department heads often distribute the funds once employees earn the recognition.

Some reasons for issuing spot bonuses include the following:

• An employee puts in extra hours on a complex project.
• An employee develops an innovative solution to a problem.
• An employee demonstrates exceptional commitment to the company's values. For example, an employee may receive a spot bonus if their organization values mentoring younger professionals and the employee dedicates extra time to mentor a junior team member during a challenging time for the junior team member.

Spot bonuses can come in the form of a gift card, potentially for either a retailer or restaurant, said Don Lowman, global leader at the Total Rewards business at Korn Ferry, a global organizational consulting firm located in Los Angeles. Another option is a company offering to donate a certain sum to the employee's preferred charity, or simply giving the employee a check.

"[It's] something they're not expecting [when] you want to express your appreciation for something that [they did] that was really out of the ordinary," Lowman said.

The benefits of a spot bonus program

Spot bonuses can improve employee engagement because they show that company leaders are paying attention to employees' hard work.

In an era of hybrid and remote work, employees may feel forgotten because managers may be unaware -- or their direct reports may believe their managers are unaware -- of an employee's extra work hours or the challenges employees are facing with their work, Lowman said.

"I think people are, for the most part, kind of reluctant to call that attention to themselves," Lowman said. "[A spot bonus demonstrates] that somebody knows that I've made an extraordinary effort and somebody cares enough to tell me they appreciate it."

[A spot bonus demonstrates] that somebody knows that I've made an extraordinary effort and somebody cares enough to tell me they appreciate it.

Spot bonuses also send a message that an organization is willing to shell out extra cash to workers who are making an extra effort. When spot bonus recipients are recognized publicly -- perhaps via the company's internal communications system -- their peers see that the organization is committed to recognizing its employees.

If employees see their co-worker receive a spot bonus, that may increase their motivation, said Lisa Hunter, Total Rewards Institute leader at The Conference Board, a think tank located in New York.

Best practices for a spot bonus program

While a spot bonus program can help companies in various ways, HR leaders should avoid, and help other leaders avoid, some potential pitfalls. Here are some guidelines to keep in mind.

Consider the administrative aspects

HR leaders should work with other leaders to figure out some important program details before launch.

HR leaders and others should determine the following, Hunter said:

• Who makes the decision to issue a spot bonus.
• Who determines the amount of a spot bonus.
• Who can receive spot bonuses.

For example, some companies may prefer managers to touch base with the HR department before issuing a spot bonus, while others may allow managers or department heads to give out spot bonuses at their own discretion.

Deliver spot bonuses in a timely manner

Managers or department heads should give out a spot bonus quickly so the reward will have the desired impact and make a clear connection between the impressive work and the spot bonus that follows. For example, if an employee completes an exemplary project, the company shouldn't wait several months before recognizing their work.

A maximum of two weeks after the employee's achievement is a good rule of thumb to make sure the spot bonus doesn't arrive too late, Lowman said.

Include a personal message

Handing an employee a gift card or a check isn't enough. A message should also accompany spot bonuses for maximum effect.

Lowman suggests keeping the message to a paragraph, if not shorter, and including some of the following feedback:

• Highlighting the employee's specific meaningful contribution.
• Explaining how it made a difference to the organization.
• Making clear that the spot bonus is a token of recognition for the employee's work.

The manager or department head composing the message shouldn't focus too much on the spot bonus amount, Lowman says. In many cases, spot bonuses are relatively small. The manager or department head recognizing the employee's outstanding effort is the most important aspect of the message.

"[The message should be] something that is fact-based, heartfelt, clear, concise and impactful," Lowman said.

Even if a manager or department head feels the spot bonus amount is low, they should avoid making light of this reward, Lowman said.

"Even though the monetary value may not be great, the [manager's] message that [an employee receives] will stay with them for a while," Lowman said.

Give out spot bonuses sparingly

Less is more when it comes to spot bonuses. When a company issues them for the slightest extra effort, they start losing their perceived value.

Organizations should view spot bonuses as out-of-the-ordinary recognition rather than a commonplace occurrence, Lowman said.

"You shouldn't cheapen [the recognition you're giving]," Lowman said. "They really should be set aside for very special circumstances."

Monitor program usage

If managers are busy, giving out spot bonuses may fall by the wayside.

During launch, HR leaders should incorporate checkpoints to ensure that employees are actually using the program, Hunter said.

"There's nothing worse than rolling out a program and then finding out that it is being used inconsistently, or not being used at all," Hunter said.