We always use a $5 bounty in our tournaments; usually a total of $25 for the buy-in. It adds a bit of fun, and the extra incentive to knock people out seems to make the play a little more aggressive.
Bounties work as a bonus when someone is knocked out. Everyone starts with a bounty chip (we sometimes use special "Bounty" chips and sometimes just use a $5 chip that can be added to the player's stack at the cash game afterwards) which is given to the player who knocks them out.
For example, if I knock you out then I get your bounty chip, so I now have 2. If someone else knocked me out, I would give them one bounty chip. I would have lost my $20 buy-in but would get paid $5 at the end of the tournament.
I hope this helps!