As a company owner, I have always prefered giving bonus rather than salary increase. Because a salary increase is "permanent". Very difficult to remove if the company does not make profits next year !
So I have tried to workout a system :
1) All employees have a yearly bonus based on the profit of the company. As the law allows, this "bucket of money" is distributed (half of it on time worked, and the other half, prorata on the base wages - this is what the French law permits).
2) Each of the managers has written goals. His bonus is dependant on the fact he has reached each goal. Of course, they should not be surprised about the money they get because they have had O3 all year long.
3) Of course, people like also their salary to increase from year to year because the cost of things increases from year to year.
The salary increase people get is linked to the acquisition of new skills, competence or responsibilities. Because by improving them, they are increasing the value of the company and their own value on the market (we are talking about skill that are helpfull for the company, of course).
To be clear :
- I look at the "national cost of life" evolution for the year
- if it is 3%, I would, for example, allow a 4% salary increase (in total)
- employee who did not improve will get less than 2%, those who improved their skill would get 4%, and those who have changed responsibilities, will get more than 4%.
So WAGE INCREASE is on VALUE. BONUS is on PERFORMANCE.
* When people ask for more wage increase than I can give, and I think they deserve it. I always try to increase the bonus maximum level for next year. For example, John had a bonus that could reach 20% of his wage this year. Next year, this maximum can reach 25%. So I offer him the possibility to gain more if he performs well.