Rewarding ‘value-adding’ staff via a bonus sounds better than the reality always seems to be. But if you’re tempted, here are some cautions…
When a bonus scheme isn’t
I have seen more than one well-intentioned, and even some reasonably well thought out, bonus schemes crash and burn, or just fizzle out over the years.
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First, let me say that the concept seems good – reward those who are adding the most value. Those who “do their job”, no less and no more, receive the standard wage/salary and those who do that bit more are rewarded accordingly. Surely that will inspire all to work harder so they can earn more?
A quick word about some fairly typical bonus schemes.
At one end of the spectrum is the scheme that seems to have been designed by a crazed mathematician. In an effort to make it as fair as possible to all, the scheme becomes overly complex and therefore loses those critical elements of simplicity and transparency.
At the other end is the “manna from heaven” type of scheme. Your manager, or a committee (!) decide how much to give you. This may also be semi-mathematical or just gut-feel, and therefore loses out on fairness and transparency.
I suppose I could summarise my top 10 generalised cautions as follows:
- There isn’t a perfect scheme, so don’t overcomplicate things. Keep it simple, transparent and fair, and engage the employees.
- The targets must be connected to the financial goals of the business. As ridiculous as it sounds, it still happens. For example, paying bonuses to people on the basis of sales targets alone will almost certainly produce poor quality sales, and probably lots of them, and therefore ultimately a poor bottom line (could be in another bonus period). Watch the single dimensional targets. The golden rule is that the bonuses must only be paid out of the additional value created in the company over and above normal expectation.
- The scheme needs to connect the employees directly with their targets. Sometimes this is aptly referred to as a “line-of-sight” target – I’ve got to be able to see it, hear it and taste it if I am going to be motivated to chase it. An exaggerated example (but real) of a non-line-of-sight target would be an employee fulfilling warehouse orders and his or her bonus depends on an increase in the holding company’s share price. Hard to get too excited there.
- The schemes tend to produce undesirable and negative behaviours. For example, sales being rushed or backdated to hit a target, or maybe worse, delayed to the next period to manipulate that target; employees spending inordinate amounts of work time devising how to “beat” or “manage” the scheme.
- The employees start to believe that their bonus is just part of their ordinary salary, and then commit against it even before received – the scheme goes stale. The motivational element of the financial bonus is soon diminished and replaced with expectation – “that is what I’m worth”.
- Bonuses can be other things, not just financial. A well-timed gift (Red Balloon Day, extra training etc) and particularly one that involves the employee’s family may have more motivational impact than just money. It’s that the giver took some time and effort to make it special to that person.
- Socially, very large bonuses seem to be blatantly greedy. I can still remember my feelings when I held a bonus cheque for a cool million dollars – it wasn’t mine, before you get too excited. The person who received it was a highly paid market trader who had made a lot of money for his clients over the year. But it still felt wrong somehow.
- The schemes can easily and very quickly destroy trust, and thereby employee engagement, if they are perceived to be unfair in design or operation. Witness the longevity of “employee of the month” schemes. Either the same few people win it frequently (which is sort of what you would expect) or the scheme is manipulated so that the title is passed around. Either way, these schemes seem to have a limited life before they become demotivating.
- Using equity as the reward, shares or share options, should help create that ownership spirit within the employees, and I think in small to medium businesses this can be achieved quite well. Of course you will remember that once you have handed out the equity, it is usually difficult to get it back if things don’t work out!
- Individual bonuses don’t work for everyone. Some people will be very motivated by them, and others not at all.
A quick “war story”. Corporate provided a monthly gift voucher which a manager was instructed to present to their outstanding individual of the month. This was an important part of Corporate’s employee incentivisation program. The problem was, in the manager’s department it was all team, team, team – and not individual.
However sexy they may seem, adding a bonus scheme into the organisational morass of human emotion and feelings may just not be worth the effort.
Mark Robilliard and business partners Peter Frampton and Carmen Mettler started a journey to find a new way for anyone to ‘get accounting’ and use it in their job and life to create value. Accounting Comes Alive was born and now provides workshops all over the world using their unique and friendly Colour Accounting™ learning system that really does work, for everyone.
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