It is important to recognise and reward outstanding performance. However, many businesses fail to do this. Recognising a job well done may not always require a financial reward and can be as simple as saying thank you.

Today however more and more businesses are providing financial rewards such as bonuses to recognise excellent performance. We read about it all the time in the papers that banks and other financial institutions are paying out six figure sums to their directors and employees. But paying bonuses is not just a preoccupation for the big guys, with more and more SME's financially incentivising their staff to achieve more.

Now don't get me wrong, I have no problem with a bonus culture! The problem I do have is that many bonus schemes target the wrong behaviours from their directors or employees by focusing too much on the "outputs" such as sales and profits rather than on getting the "inputs" right such as ensuring high levels of customer satisfaction, service and product quality. The crisis facing Toyota is just one example of a business that concentrated on the top line and lost sight of the basics that made it a success.

In addition many businesses focus on individual performance rather than the team as a whole. I am an advocate of rewarding team performance as it reinforces the culture that exists in many companies today, namely that the TEAM is the catalyst for change and performance improvement.

Finally, remember that an effective system managing bonuses needs to finance itself. It sounds simple, but some companies don't follow this rule and continue to pay bonuses even when the business is making losses. If sales people are rewarded on sales targets make sure their full bonus is only paid out when all the cash is collected. This gives them an incentive to collect the cash as well.