Why Company Bonuses May be out the Window

Annual bonuses are something that many employees look forward to throughout the year. Whether these bonuses are based on individual performance, or the performance of the company, they are a long standing tradition in many organizations. At first glance, bonuses seem to be a great way to reward employees for their hard work throughout the year. Many studies have found, however, that the bonus structures used by most organizations today actually have little to no positive effect on the work that is done.

Bonuses follow the mentality that if employees do one thing, they will get a reward. This is quite similar to the mentality of employers who say ‘don’t do this, or you’ll get punished.’ This coercive way of treating employees has consistently been shown to have negative results, and even if it is phrased in a more positive way (such as bonuses) it can still produce those negative results.

Problems Associated with Regular Bonuses

Companies that give annual bonuses to their employees face a major problem. The company undoubtedly sends out these bonuses as a reward for hard work, and they hope that the bonus will incentivize further hard work in the future. The problem is, however, that it is almost impossible to escape from one of two traps that are associated with a bonus based payment structure. These traps are:

Bonuses are Expected – If everyone (or nearly everyone) is getting a bonus, it quickly becomes an expected part of their pay. Rather than feeling like it is a reward for exceptional work, they consider it just a part of their payment structure. When this is the case, employees are no more motivated by a bonus than they are by their normal paycheck.
Bonuses are Perceived to be Impossible to Get – For companies that make getting a bonus something reserved only to the best performers, the ‘average’ employee will become discouraged. They will quickly come to believe that it is nearly impossible to get these bonuses, and that can actually cause their morale and engagement levels to drop. This can also give the appearance of favoritism to those who are getting bonuses, whether that appearance is correct or not.

Whichever of these two traps a company falls into, the result is largely the same. Employees will become more resentful and less likely to give the company their best effort on a day to day basis. The most any company can hope for when giving out bonuses is that they will get a brief surge in productivity for a few weeks before and after the bonuses are given. Even this isn’t always going to happen.

Eliminating Bonuses

Companies that choose to eliminate annual bonuses will want to make sure they do it in a well thought out way. Many employees have come to expect these bonuses, and if they are eliminated, it will seem to them that their pay is being cut (which, in effect, it is). If going through this transition, make sure to give employees plenty of time to adjust. If bonuses normally come out in January, for example, don’t make the announcement that they won’t be coming this year in December.

Most companies will want to take some or all of the money that would be used as a bonus, and add it to the regular pay of the employees. This will offset the money that the employees will be missing, by spreading it out over the year. In most cases, this will help to mitigate any dissatisfaction with the change.

A Motivating Alternative

If companies come to accept that annual bonuses are not a good motivator of employees, they will likely want to come up with an improved option. Hiring the right people for the job, and allowing them to take ownership of their positions can often have much better results than a bonus. Ensuring that they feel valued and appreciated is also important. The bottom line is, while all employees need a fair compensation for their work, this is not the only, or even the best, motivator to help them want to go above and beyond.