The bonuses delivered to staff at some of Australia’s biggest companies might seem like nothing but a dream to smaller businesses – but the effect of cash payments on success is questionable.
Qantas revealed on Wednesday that 25,000 non-executive staff will be netting bonuses of up to $3000, after the airline’s record $1.53 billion profit for the last financial year, while Blackmores increased its staff bonus to nine week’s pay, up from last year’s six week payment.
It’s a happy story for some, but these celebrations might seem far off realities for small business owners worried about their cashflow.
However, there’s a trend towards cutting bonuses altogether at some major operators, while recruiters believe that the smaller your operation, the less bonus payments play a part in keeping people.
“We find when a cash reward is on offer, it doesn’t always have the desired effect,” Ben Watts, director at wattsnext HR told SmartCompany.
“Keeping people is more about time off, flexible work environments, the other things that motivate people to come to work.”
While local companies are sharing the good times with staff, not everyone believes in the power of cash for long term growth. Just this week UK fund manager Woodford Investment Management put all employees on a flat salary structure, telling The Guardian that research showed bonuses were ineffective and could lead to “wrong behaviours”. The firm concluded that bonus payments did not lead to better work from their employees, so have knocked them off entirely.
Cynicism around bonus payments is nothing new – a review of incentive plans in US companies in The Harvard Business Review in 1993 highlighted that as early as the 1990s, the body of research available on bonuses and extra pay indicated that monetary incentives were only really good for “temporary compliance” from employees, not for keeping people there for the long term.
For small business owners, clarity around any kind of extra benefits is key, says Watts.
“Discretionary bonuses can cause so many morale issues, so if you’re going down that path, link payments to clear KPIs,” he says.
“When you start out with contracts, make sure you clearly define someone’s role as well as their bonus, so you know this at the very beginning.”
Remuneration and governance consultants Egan Associates believe rewards to employees for outperformance work well for listed companies, where shareholders are attracted to payments that don’t represent recurring costs to the company but do reward staff member contributions – provided the profits are there.
“There’s no point in introducing a profit sharing plan where there is no chance the company will provide a minimum shareholder return,” Egan senior research officer Suzanne Wohlthat told SmartCompany.
However, Watts says the game changes when you look at the smaller end of the company spectrum, especially if the reasons for a bonus are blurred.
“Delivering bonuses can be a big part of retaining staff, but we find with smaller businesses it’s not always the dollars that motivate people,” he says.
One thing Qantas has been clear about in its 2016 bonus payment is the clarity around what it is rewarding. Chief executive Alan Joyce said in the airline’s 2016 financial year address that “this result belongs to the Qantas Group’s amazing people”. A total of $160 million in payments will be distributed to staff, while shareholders were delivered the company’s first dividend since 2009.
Meanwhile, Blackmores chief executive Christine Holgate reportedly told her 1000 employees to “make the most of” this year’s reward payments, indicating the possibility that such extras might not last forever.