Breaking the bonus culture

2005

Most organisations have cottoned on to the idea of encouraging superior levels of performance by offering extra financial rewards that are (supposedly) linked to both individual and organisational performance - the so-called "bonus culture".

Much is also made of the fact that in the City in particular, the whole idea seems to have got out of hand, with "mercenary employees holding organisations hostage".

Elsewhere there is usually some sort of initiative to relate reward to performance via a bonus system. Whilst this might involve lesser sums of money, it's still a sort of Pandora's box. Because once the performance-related bonus idea has got out of its box, its darn near impossible to get it back in again.

The dilemma
Organisations want to motivate their employees so they generate improved business results. If you actually asked an employee what would induce them to do such a thing, you'd be pretty likely to hear them say, "If you pay me more money….".

In fact this expectation has become SO ingrained that leaders simply assume it will be so. They are almost loathed to ask anyone to do anything more if they cannot satisfy the outstretched hands.

But this assumption means leaders can give up on trying to motivate their people through any other means.

Organisations – which tend to be driven by financial performance - assume the same thing will work for their employees. Superficially they are right, because that's what employees usually say they want.

But properly-run bonus systems are hard to get right. They take up an inordinate of everyone's airtime, and in the worst cases can actually produce in-fighting that would far better be directed at the competition.

In fact, the hidden cost of running the bonus system (distraction, HR resource, arguing, etc.) can actually outweigh its benefits.

Anyone who finds themselves in a position where 40 per cent of their salary is related to what their line manager thinks of them on a given day is understandably going to be pretty preoccupied with that fact. Even those who aren't of the mercenary inclination find themselves orientating their work strategies to where the money is.

City-style mega-bonuses create a rather odd labour market where price sensitivity is acute and switching potential almost immediate. This may actually be quite healthy for certain areas of the business (trading floors, for example), but is unlikely to be so for the whole organisation.

One-size-fits-all systems create the wrong dynamic in some business areas, meaning that the wrong people are attracted and retained. But they cannot be changed, because other areas of the business will be decimated.

Vicious circle?
A bonus is part of someone's compensation package. Interesting word, "compensation". The Thesaurus states "make up for, amends, atone". It implies that someone has suffered something for which they deserve recompense. It doesn't imply that compensation is a reward for something positive.

Now we get to the important subject of motivation. Studies of large numbers of employees reveal that the most important factor in motivating employees are things like recognition, development, fast-pace, decision making. Coaching work with senior leaders also shows a surprising number of similar non-monetary motivators.

So, the fact that people are compensated by money for extra effort can mask the fact that what really motivates them is lacking. In these circumstances, work becomes more of a sufferance and more money (compensation) is required to compensate for the absence of other motivating factors.

Hostages to benefits
It may work well enough as compensation. Organisations have further tried to improve things by having fun with mix and match benefits packages, which are undoubtedly popular (although often costly and complex to administer). They have some element of choice, which could be argued to have some rude link to different motivations.

Lets think about the word "benefit". Thesaurus says "blessing, good turn, kindness". It implies the organisation has a good character, demonstrated to employees by these gifts.

Given they get taken away only if someone leaves, and are not linked to performance, they go with the mercenary/hostage analogy, only this time it's the employees who are the hostages.

If not money, then how?
What is NOT a good idea is to suddenly dump whatever bonus system is in operation. In fact, bad as it may be, its probably better to leave it in place for now as there is nothing on earth guaranteed to distract the entire workforce more than a suggestion that their compensation is about to be fiddled with. Anyone who is subject to union restrictions is going to have added complications.

Leaders and managers have more power than they think. Finding out on an individual level what motivates people can be very surprising.

Tip. Staff will only be free to share these things with you if you have managed to get their attention away from compensation, bonuses, benefits etc., so its very important NOT TO USE THESE WORDS and to keep the discussion away from them.

Tip. There is no "wrong" motivator, not any right answer either. It can be helpful to ask for examples and stories of where these things have worked or not worked in the past, to better understand.

Tip. There should now be lots of ways that whatever has been uncovered can better be satisfied, often by simply rearranging someone's responsibilities.

Obviously motivators may be perfectly in order and ok, thank you. Resist the urge to fiddle if nothing is wrong, but make sure you check regularly.

Finally, if something in someone's motivators is not being satisfied, their performance WILL be compromised, no matter how much compensation, bonus or benefit you throw at them. Any performance improvement will be hard to generate for anything other than short term, and will require more and more compensation thrown at it to sustain.

What now?
If an organisation can key into personal motivators and then take non-monetary steps to satisfy them, step back and light the blue touch paper in terms of performance improvement. Typically less and less requirement is then in place for extra compensation.

Of course the organisation may want to pay it anyway - and so it should. But, rather than having a bonus culture that rewarded poor performance, this would be icing and not cake for a fully satisfied and high-performing employee.

Kate Lidbetter is a consultant with SKAI Associates, a leadership consulting firm whose mission is to inspire and help organisations to deliver.

About The Author

Kate Lidbetter
Kate Lidbetter

Kate Lidbetter is a consultant with SKAI Associates, a leadership consulting firm whose mission is to inspire and help organisations to deliver.

Older Comments

I am retired. I was often offered bonuses that were based on impossible objectives. I worked 24/7 for job interest, not bonuses. They made no difference to me or the way I worked. For others getting them was mainly pure luck - the right man in the right place at the right time. In my view ALL BONUSES should be taxed at a higher rate than salary. If you do not do your job properly you should be sacked. If you do your job very well you should have an increase in salary. If you are exceptional perhaps you should get a better salary a higher taxed bonus for the year prior to a salary increase. There should be no bonuses in the civil service unless it results from a demonstrable savings in costs; and then only for the year in question.

Mark Johnstone