Bonuses are one of the most common ways companies encourage workplace productivity. It’s simple behavioral science. If you want more of a behavior, reward that behavior. Incentives, like performance bonuses and profit sharing, have been proven successful in enhancing and sustaining productivity.
Recently, there has been debate surrounding the effectiveness of bonuses and what kind to use.
What the research says:
A 2017 study suggests that individual performance-based bonuses positively correlate with increased job satisfaction, organizational commitment and trust in management, while profit-based pay and employee share-ownership damaged these areas. And, though individual performance-based pay increased these factors positively, it also increased employee perception of job intensity and had adverse effects on employee attitudes.
Data collected from the British Workplace Employment Relations Survey found that having mixed incentives was more effective than individual or group incentives alone. Too much focus on the individual could damage teamwork and too much group incentive devalues individual efforts. It’s best to do both.
3 things to consider
Creating an incentive plan should be individualized to your company and employee needs.
- Employee needs are changing
Hint: The employee needs to be invested in the reward
A major problem that seems to be impacting the effectiveness of bonuses is that employee needs are changing. Younger generations are more interested in career growth, a happy work environment and having an impact in their position than they are on an arbitrary bonus.
Employees are looking to find purpose in their work. If incentives are only based around money and numbers, you could be missing the mark on what actually matters to an employee.
Not only does focusing too much on hitting targets and research data reduce personal motivation, but it puts your employees to sleep. (You know what meeting I’m talking about.)
2. The incentive is motivating the wrong behavior
Hint: Employee potential may be higher than their daily target
Expected performance-based bonuses can potentially create an environment where employees are only being motivated to cross off their to do list. They aren’t engaged in a meaningful goal. They know exactly how much they need to do to get their bonus and then stop. They aren’t being motivated to work to their highest potential.
Instead, consider investing in both the productivity and the growth of an employee or team. Encourage motivation to do their best work by rewarding employee development with opportunities for education and advancement. This will increase the quantity and the quality of their work.
3. Rewards are too infrequent
Hint: Employees need reminders of what they’re working towards
To increase intrinsic motivation, or self-motivated behavior, provide rewards regularly. A 2018 study found that more frequent rewards like quarterly bonuses increased job performance more than delayed rewards like an annual bonus.
Employees performed better while given more frequent rewards and they were still more motivated even when the reward was removed.
Frequent rewards remind your employees regularly that you value them and keeps them on target.
When creating a bonus plan, ask yourself these three questions.
- What rewards do my employees want? (Do a survey to ask your employees.)
- What behavior am I trying to motivate?
- What is the most effective reward system to motivate this behavior?