Within our Membership Site we have been celebrating the success of Anne, one of our members who has successfully negotiated a pay increase utilising one of the tools we provided.
The discussion we had led to write about the benefits of bonus payments over salary increases.
I thought I’d expand on it here to perhaps generate more thinking as I know how easy it is to give bonuses, that warm feeling from both leader and team member is sweet for sure. But, in business I believe you are wise to beware of bonuses becoming obligations.
My perspective is that bonuses should buy something of value that you can clearly and definitively measure.
Bonuses may be used to correct unprofitable behaviour, encourage profitable behaviour, encourage education and self improvement, encourage doing difficult or uncomfortable things.
They are not gifts or obligations - they are tools.
Let’s also clarify the difference between “bonuses” and “recognition”.
Getting the employee-of-the-month award, for example, is recognition. It is not a bonus.
A bonus is money, extra time off, or things money buys like holidays or products. Recognition is pins, plaques, newsletter articles, parking spaces.
Bonuses are very troublesome things, and team or group bonuses are the most difficult. Frankly, I’m not convinced there are any good answers to this conundrum, although some seem worse than others.
I’m not a fan of group bonuses tied to sales or profit, because far too much of that outcome is outside the control of the individual employee, and the reward is almost always overly generous to some and miserly to others.
In my last “employed” role, the organisation had, in my opinion, a near useless although very generous bonus scheme linked to overall profit and your salary.
I watched as employees who contributed very little to business success get paid more bonus than those who, without doubt gave their all towards making the business more successful. The huge discrepancy coming because their basic salaries were different.
Let me lay out how much of a difference this can be:
Although I say I dislike this type of bonus, I have also worked with an SME contractor for whom we introduced this same style of scheme and it is working effectively within his business. I am assuming that the size of the business matters.
Hundreds of employees in scheme (not effective) vs. small team of less than 20 (highly effective).
The best results seem to come from very targeted, behaviour-based, individual bonus plans.
These are usually engineered to get an employee to do something he or she tends to avoid, neglect, or find uncomfortable or difficult, often connected to making that employee and their job function more profitable for the company.
Such bonuses do, however, become obligations. If you take away the bonus compensation, the bought-and-paid-for compliance also goes away.
So in conclusion:
bonuses can be perfectly okay as part a reward strategy, but you need to realise what you’re getting into before you start.
Undoing any is really very ugly.
About the Author
Building Top Companies
My life within the construction sector started when I was 6 years old, spending time in my dads joinery workshop.
The next 40 years saw me go from sweeping up and making tea in dads business to a career which helped grow one of the most successful private sector main contractors in the UK.
A lover of all things business related, my talent lies in developing exceptional business support services that are central to the success of all top companies.