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Do you give your employees big annual bonuses as a reward for their work? Or perhaps you just give them out of tradition? If so, you have plenty of company: It’s common to rely on annual bonus plans to build employee motivation and pad salaries. However, a lot of bonus plans aren’t set up in a way that truly motivates good work. There’s a psychology behind rewards and employee incentives that you need to understand before you can create an effective bonus structure.
Do you give bonus plans or do employees earn them?
If bonuses are going to serve as an incentive, you need to provide employees with clear metrics and objectives so that they understand exactly what they need to accomplish to earn the bonus. If you have a structure where everyone gets a bonus no matter what, that will quickly demotivate some employees, because they expect to receive a check regardless of their performance.
In addition to being clear, the bonus objectives need to strike a balance so that they’re not too far-fetched, or too easy. The goals should be attainable when it comes to bonus plans.
Too little, too late
Employees come to work every day of the year, and you need them to feel motivated and engaged on each one of those days. Most bonuses, however, only come one to four times per year. Even if employees feel a sense of satisfaction when they finally get their check (and research shows that sometimes they don’t), it won’t provide motivation for an employee who faces a challenging work situation weeks or months before bonuses are due. Furthermore, annual bonus plans can actually spawn resentment or entitlement, creating interpersonal conflicts among employees or alienation from the company during a financially lean year.
Reward more with less
While financial incentives can be an effective way to motivate and reward employees, employers shouldn’t rely on periodic payout and annual bonus plans as their only method of engagement. Managers and employees should recognize each other and celebrate accomplishments both large and small all throughout the year. Real-time recognition that’s tied directly to an employee’s contribution is often more effective than the annual bonus—and it costs a lot less.
And if you’re running a recognition program manually with spreadsheets and closets full of rewards, you should know that there is a better way. Check out this white paper to learn how to make things easier.