Make no mistake, an employee bonus–whether it’s cash, or a gift, or time off, or something else of value–can be a powerful tool to motivate a workforce. But an employee bonus can also be a colossal waste of money. Worse yet, the wrong kind of bonus can backfire on a business and become a minefield of employee resentment and hostility toward management.
There are two types of employee bonuses: those that encourage your people to become more productive or maintain high standards of performance, and those that do not. The rule of thumb is simple in this case: either link employee bonuses to performance, or eliminate them altogether.
Fortunately, it’s easy to distinguish between the two types of employee bonuses. Remember, you’re trying to encourage certain types of behavior by rewarding it. For example, consider offering a bonus to:
- salespeople who exceed their quotas for the year;
- service department personnel who complete a higher than average number of procedures;
- accounts receivable staffers who achieve high levels of collections;
- production line workers who suggest product design improvements;
- or any employees who consistently report to work on time, or use less than their allotment of sick leave, or suggest ways to reduce expenses.
In each of these examples, extending bonuses creates two winners: the employee who receives the compensation and the employer who benefits from the worker’s positive performance.
On the other hand, what does an employer accomplish by offering Christmas bonuses, or year end bonuses, or other forms of extra compensation not dependent on the employee’s performance? Free- floating bonuses that aren’t attached to positive performance can create serious problems for struggling businesses.
What happens, for example, when business takes a nose-dive and management can no longer afford to offer holiday bonuses? Employees who received those goodies in the past, continue to expect them. And the bigger these bonuses are, the more potentially dangerous they become. I’ve seen corporations face outright mutiny because they attempted to discontinue their practice of offering hefty end-of-the-year bonuses.
While the best policy is not to offer non-performance linked bonuses in the first place, how do you dismount from the tiger once the ride has begun? My advice is to do it very gingerly.
You can’t take a benefit away from a veteran employee. If you gave them each a turkey last year, you’d better give them a turkey this year, or else you’ll be the turkey. But if you’ve been routinely passing out substantial cash bonuses unrelated to performance, put an end to the practice. Explain to your employees that from now on, the amount that they had been receiving at year end will go into their paychecks in the form of a salary increase spread over 52 weeks.
That way existing employees don’t feel they’re losing anything, and you’re not obligated to offer future bonuses to new employees.