So, About Those Bonuses…

 For many of us, year-end bonuses are coming up. Rewards and incentives have shifted toward an “everyone gets a gold star” mentality. Many Gen Yers and Millennials have grown accustom to the idea that everyone gets the same rewards. Some schools are no longer giving grades, or making children run the mile because of those who fall behind. It seems like consistently showing up for work will qualify most employees for a bonus. According to Laura Sejen, global rewards leader at Towers Watson,

“It appears that some organizations are simply paying for status quo, treating their annual incentive plans as an entitlement program rather than one that should reward employees for their performance and contribution to their organizations.”

Bonus programs are supposed to encourage hard work and act as an incentive for employees to continually excel. The traditional bonus system of hard work=bonus is dying, and current bonus programs seem to be rewarding…well, nothing. According to a Fox Business article, this year 25 percent of employers will dole out bonuses to workers who fail to meet performance expectations.

The “why” is important with any process in business. Companies need to figure out why they have a bonus program. What’s the point? If the point of bonuses is to simply give more money to their employees, then by all means, they should continue the entitlement program model of bonuses. However, if their bonuses are meant to motivate and reward, then I’m willing to bet that a lot of companies need to reconsider their bonus methods.

When a company hires an employee, they agree on a certain amount of pay for a certain expectations to be fulfilled. When those expectations are met, they get paid. What sense does it make to pay them more than agreed upon for meeting those expectations? This part has already been negotiated. It is work beyond expectations that should be rewarded.

By inflating the average worker’s salary with standard and expected bonuses, by the same amount that they inflate top performers’ salaries, companies are merely increasing pay ranges for everyone. The incentive or drive to earn this additional pay goes right out the window. Sure, this model might do something for overall retention, but nothing for motivation or engagement.

Annual reviews are okay, but constant performance documentation is way better. Annual reviews can end up being a snap shot of the employee’s performance for whatever period the review happens to fall on. Consistent performance documentation and reviews are how management can get honest assessments of their employees.

Performance documentation is the first step. The second step is to use this information to improve. For rewards purposes, the information gathered with documentation and reviews should be how management gauges bonuses.

For any organization restructuring their incentives or bonus programs, management should be upfront about it from the start. Nothing kills morale like a department full of workers expecting Christmas spending money that never comes. Open communication about the restructuring also gives workers a reason to improve. This communication should include what can be done differently for a different outcome. When workers know that they will actually have to work for their bonus, they’ll do just that.

When revamping your bonus program, be sure to set clear goals and expectations. While this can’t always be something as tangible or finite as a number, these goals should be made as clear as possible. Based on clearly communicated expectations, realistic goals and constant performance reviews, it should be a surprise to no one when an employee doesn’t get a bonus.