Why Year-End Bonuses May Hurt Employee Motivation and Performance
It is that time of year when stocking stuffing may take the form of a holiday or year-end bonus. Many employers add year-end bonuses annually as a line item to their budgets and go through the motions in December to spread some holiday cheer to employees. But do discretionary bonus plans really add value?
Traditional year-end/holiday bonus programs may be a nice gesture for employees, but they:
Do nothing to encourage future job performance on the part of employees.
Tell employees nothing about why they received the bonus they received.
Give employees no idea what to do the next year to get another bonus.
Provide little to no Return on Investment for employers.
Bonus Plans with a Purpose
Well thought-out and designed bonus plans can be effective for driving specific employee behaviors, and are an important part of total compensation structures as you think about compensation strategies and salary planning for the new-year.
Non-discretionary bonus plans, which have clear goals linked to overall company objectives as well as individual job-related measures and appropriate target payout amounts, are much more effective than discretionary plans. The bonus plan process should start before the beginning of the year in which financial and operational targets the company must meet are shared with employees. Employees need to understand that bonuses are only paid after company financial targets are met, and what they need to do to earn additional bonus amounts by meeting individual performance targets. If those goals are met, employees will be rewarded understanding the strong link between performance and receipt of bonus payments.
Money Can’t Always Buy Motivation
Organizational context, such as culture and leadership effectiveness, are of prime importance, with or without well-designed bonus plans. Having a great culture and great leaders who value employee contribution and develop employees to be all they can be are what drives employee and organization performance even more than monetary incentives.
Make an Investment in Cultural Alignment
Conover Consulting, known for its compensation and bonus planning also works with organizations to identify the gaps in your culture and align employees and leadership on a focused mission and vision. Our Cultural Alignment services can help you with the trifecta of leadership, compensation, and culture to ensure everything is working together to a better bottom line. Take our assessment and contact us.