Ernie Capobianco, CEO, Sq1, a digital conversion optimization agency.
The generally accepted or prevailing attitude about bonus plans is that they can serve as an effective motivator and incentive to increase productivity and employee performance.
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Why is this so? Because it’s been a time honored tradition. And as such, its efficacy has not often been called into question or analyzed.
But while it sometimes does the trick, there is a dark side to this financial carrot that can wind up being more of a monkey wrench in the works. Bonus plans can actually have an adverse effect that destroys morale, diminishes productivity, creates discord and pushes quality people out the door.
While it’s true that bonus plans can have a short-term lift in productivity, there is a decided lack of evidence to prove that the effects are lasting. In fact, bonuses have been shown to promote conflict in the workplace.
One such problem is that bonuses foster such a competitive environment that it stifles collaboration and encourages a kind of Machiavellian attitude that promotes doing whatever it takes to get the bonus, regardless of its impact. And this could be at the expense of what is in the company’s best interests or that of co-workers.
Another inequality that is often a drawback to bonus schemes are the metrics that determine who gets a bonus and who does not: Are they easy to measure? Are they fair? And will they create disputes?
Lastly, bonuses can serve as a disincentive to those who do not win them as they may get the impression their contribution is less valued to the company. There’s no quicker way to destroy team morale than by granting a bonus to some but not others.
Short-term gain, long-term pain
Yes it’s true that financial bonuses can boost productivity in the short-term but ultimately company morale will suffer. The reason? People typically will use the bonus as the main driver for doing their job and not see their job as an end in itself. They become more addicted to the allure of getting a bonus and their job satisfaction suffers.
Eventually, as a result employees feel their current compensation isn’t sufficient to warrant the added effort – and if the bonuses can’t be paid – they revert to a lower level of productivity than before as they realize they aren’t going to get a bonus.
All’s fair in love and war, but not in bonuses
You can pretty much bet that any incentive scheme you come up with to reward people for their skill and performance will be viewed as unfair by a certain contingency of your workforce.
That’s because factors such as the metrics used to measure results tend to be subjective and are impacted by a multitude of factors, which can skew outcomes. And the net result is instead of motivating employees, subjective bonuses breed an atmosphere of resentment toward management and co-workers, which negates any benefit the incentive program is supposed to have.
Another variable that could create dissension in the workplace is the perceived subjectivity inherent in bonus plans schemes. Employees can compare their base pay to the market rate so it’s considered a relatively objective standard; the employees can also get a sense of whether they are being compensated fairly.
Incentives are quite a different story, however, as someone in the company is likely to feel like he or she’s getting the shaft because attaching a dollar value to behavior is subjective.
In addition, market pressure, management decisions and other variables beyond the employees’ control can make them feel as if the bonus is beyond their reach.
Employees may tend to consider the bonus as expected if they receive one year after year. They get hooked on it and come to count on it as part of their compensation.
If the company has several bad quarters, the economy experiences a downturn, or any other reason, and the bonuses are cut off, the employees won’t likely be sympathetic. They will perceive the situation as unfair and the company’s fault. And even worse, may look upon the company as not delivering on its “promise” and bolt.
There are even studies that suggest incentive cutbacks create an immediate negative effect on sales and morale, and over years it can cause companies to lose their top performers.
The good, the bad and the ugly of bonuses
The theory behind incentive compensation is money motivates employees to perform well. Unfortunately, quite often employees become angry with the company because their own expectations for bonuses are not met. Morale is hurt when employees work hard all year, yet the profits of the company still lag.
If incentive comes in the form of profit sharing, where everyone gets their “piece of the pie” it can be a nice perk that attracts prospective employees to the company and helps retain existing staff.
On the other hand, if it’s something like a “best salesperson of the month,” then it could have an adverse effect, since it’s so difficult to measure objectively.
Create a positive environment and net a positive outcome
The key here is you can’t buy professionalism. You shouldn’t pay employees extra to do their job well.
Good employees are the ones that do a good job without any financial incentive. If you treat your employees with respect, make them feel appreciated with praise and recognition; you will have happy, motivated employees. Don’t just throw money at them with bonuses.
Create a work environment that is conducive to doing good work and you’ll reap more rewards than throwing money at employees. Foster a collaborative, not competitive environment and you’ll have employees who look at their co-workers as team members not their competition. And set company goals that they’ll take pride in achieving rather than using bribes or throwing money at them.
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