Why Not Give Them All a Bonus?
Bonuses have always had a role in any well-structured reward policy. But it is very
easy to end with nothing to show for the effort and extra money or to cause resentment
instead of motivation. So, given their current profile I thought it worth highlighting
some of the key aspects. I am using the term bonus loosely to include bonus, commission,
profit share, etc. [also see topic guide on Reviewing a Bonus Scheme]
Why have a bonus scheme?
Always be clear about why you are developing a scheme and keep those objectives in
mind at all times. Be realistic about the amount of good-will and gratitude you will
generate as a result. Most schemes work by focusing staff attention on specific
priorities rather than by encouraging them to work harder - so make sure your scheme
encourages the priorities that really matter. Some schemes are just intended to give
a general uplift to staff morale and motivation. An often forgotten reason for bonuses
is to flex costs with income - to avoid paying out what you have not earned.
Incentive or Reward?
In developing bonus plans, I find it helps to think of schemes as being either incentive-based
or reward-based. These are easy to confuse but it is important that you do not. Incentive-based
payments focus on future performance and promise specific cash for specific performance.
Typically focused on a critical aspect of performance, staff know, in advance, how
much extra pay they will get for every £100-worth of sales, every 100 units of production
and, even, every 100 days without being off sick. Payments are normally calculable,
non-cancelable and will, typically, pay out monthly or quarterly.
Reward-based schemes are fuzzier and look back at past performance; usually on an
annual basis. They can include profit-shares, company-wide bonuses and the, increasingly
popular, merit-pay replacement schemes. The motivational effect comes from staff
believing that good performance will not go unrecognised. Reward schemes can sometimes
be linked to a specific factor, say a customer satisfaction measure but, even then,
the link between individual actions and the final pay-out is usually not a measurable
one.
How much should it pay?
This depends on a whole list of factors that include competitive market practice,
the nature of the measure you are using and why you are introducing the scheme. Incentive
schemes will usually pay more than reward-based ones.
Offset against basic pay ?
This depends on competitor practice, how much the payments will be, how variable
they can be and why you are designing the scheme.
If you are in an industry or specialism where everyone expects a lower basic and
a high bonus then follow that practice. Money is money and you should do your market
comparisons on total pay. However, if yours is the only scheme in the sector expect
to offset less of the bonus or you will damage recruitment. Staff who have not have
come across such a scheme before, or who are in low wage sectors, will not respond
to a volatile, highly-offset scheme.
Do not be over-optimistic about how much your newly-designed scheme will pay. That
may lead you to cap at too low a level or offset too much against basic pay. Even
aggressive sales schemes must be geared to provide an appropriate income to conscientious,
experienced staff. The greater the potential volatility in the pay-out more you must
allow high payments. Staff will only risk lean years if they know they can have fat
ones (and even the lean ones must pay the mortgage). City bonuses are an extreme
example of this.
Must you include everyone?
Not necessarily. Separate schemes for sales staff, production workers or city dealing
rooms are common and tend not to cause dissent whereas, lower-paying reward-type
schemes are normally paid to everyone. Nowadays, managements are nervous of anything
that is not totally inclusive but group-specific schemes have their place. For example,
if there is one section where unexpected absences are especially damaging (train
drivers, say) do you pay a significant attendance bonus to that group alone or do
you pay a modest, and possibly ineffective, one to all departments? Better, perhaps,
to install a driver bonus based some measure of fully-staffed shifts.
Team bonuses?
There are some successful team-based schemes but mostly staff do not work to a collective
goal in the way that, say, a football team does. An athletics team, where success
is the totalling of individual efforts, is a better analogy in most cases. If the
high jumper wins gold you must not take it away because the sprinter pulled a muscle
and came last.
With groups it is essential to keep judgment and opinion out of the calculation.
Team rewards must be based on something measurable if staff are not to be more demotivated
than inspired. An individual employee will accept a box 2 appraisal because you judge
them not to be worth a box 1. A whole department or team will demand proof. Most
staff do not work in teams that have easily measurable targets and schemes quickly
fall into disrepute if they are based on measures that are contrived and artificial.
What can go wrong?
There is a long list of ways that bonus schemes can go wrong. The scheme formula
can pay less, or more, than you intended. The factors the scheme is based on may
not be as key to success as you thought or may have to be changed part-way through.
Any scheme that pays much the same every year will soon lose its effectiveness.
Above all, you must get the implementation right. That means taking great care in
developing the detail of the scheme and putting much more effort than you expect
into announcing and explaining it.
Frank Hobson
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