Often, when an independent professional has a choice for projects between two of their clients, they will consider their experience working for each. Is it a positive work environment? Are there reasonable processes and procedures that facilitate productivity? Are there learning and skill-building opportunities? These examples often determine a Client of Choice and can contribute to a final selection by the independent.
Another factor in a decision can be whether a client has mechanisms in place to offer incentives and other added values to their independent contractors. This can be a key consideration for high-value talent, as these workers tend to be highly productive and often contribute to clients beyond their scope of work. A client that has awarded spot bonuses during or at the end of a project is more likely to be preferred by the independent professionals they want to engage.
Including one or more mechanisms for incentives and bonuses in your direct sourcing program can help engage independent talent with needed expertise and skills. However, it’s important to make sure that these mechanisms do not create risks in your total talent population.
Today, we’ll not only differentiate between types of bonuses (Incentive Vs. Spot) but also review what key risk factors there are and how to ensure a compliant and talent-forward engagement.
Incentives Versus Spot Bonuses
For our purposes here, we are making a distinction between incentives and spot bonuses. Incentives are formalized opportunities that are known in advance, for example, “If you do X, you will receive Y.” X could be achieving or exceeding a predefined goal (with the amount awarded tied to the quantified result) or bringing a new business opportunity to the client (with the amount a set percentage or tied to the size of the opportunity). Y could be money, gift cards, or some other extra award.
Spot bonuses, on the other hand, are not formalized and are up to the discretion of the hiring manager or team. These may be awarded during the project, for example, by hitting a milestone early. Or they could be awarded upon project completion, for example, exceeding the contractor’s scope of work or simply in recognition of performance excellence.
Risk Factors to Consider (How to Mitigate Risk when Distributing Independent Professional Bonuses)
When defining the types of rewards and awards that will be part of your direct sourcing program, it’s important to mitigate any potential risks. As with most risks, these can be mitigated with clear guidelines, well-defined scopes, and effective communication/dissemination.
Offer Clear Guidelines for Bonuses and Incentives
There are legal distinctions between employees and contractors, and within your contractor population there could be workers who are payrolled through a third party and those who invoice the company directly. It’s important to understand and follow the right procedures when setting up an incentive program or other bonus structure, and to clearly lay out in guidelines who is (and is not) eligible for each type of incentive. A best practice is to create guidelines, and always to work with the right functions in the company to make sure you avoid these and other risks when defining rewards in your direct sourcing program. Call on Legal to ensure that you are complying with regulations, and work with HR to be certain that a clear distinction is made where needed.
Clearly Define Eligibility Guidelines
Clearly defining the types of rewards available to independent talent in your direct sourcing program, and how to go about awarding them, will be useful for hiring managers. In addition, when your valued independents know that you have such benefits in place, they will be more likely to choose you when looking at project options.
Communicate with Candor and Clarity to Avoid Misconception
A cultural risk could arise from the perceptions of your workers. Giving the same rewards to everyone could blur the line between employees and contractors in their eyes. While this might not be an issue, it also might cause unrest among employees who resent the lack of distinction. Clear scopes of coverage, as noted above as well as communication about who is, and is not eligible, and how each department can obtain bonuses, is always welcomed.