If you're like most professionals working in large corporations, you're eligible for an annual bonus as part of your pay. If you're one of the luckier ones, you've been hearing rumors lately that with the economy recovering, that bonus may become a reality again.
Good for you. But maybe not so good for your company. Chances are, its bonus program is costing it plenty but it isn't seeing much of a motivation boost in return, from you or anyone else.
The idea that some part of an employee's pay should be contingent on good performance is a very old one. Harvard's Derek Bok writes that it dates back to at least the time of Julius Caesar, who instituted an "elaborate system to supply bonuses to loyal soldiers participating in successful campaigns — 50 dinari for every legionnaire and 500 for each centurion." In America, Bok says, bonuses started to become a significant part of corporate leaders' compensation around the time of the first World War. Now, bonuses have become so commonplace in the business world that their value is rarely questioned.
The problem is that, even if it's true that contingent compensation spurs higher performance (and not everyone thinks it does - see, for example, this pdf), when the reward comes as one big check cut by the finance department at the end of the fiscal year, that motivating effect is mainly lost. That's because the bonus fails to make two critical connections:
- The connection between values and behavior. Typically, bonuses are tied to financial achievement —they're paid out when a certain benchmark is hit such as yearly company revenue, earnings per share, or department revenue targets. But the connection between the outcomes you truly value and the behaviors you want to see from employees can be far from obvious.
- The connection between a worker and his/her direct supervisor. Plenty of research has shown that the most important influencer of workers' performance, for better or worse, is the dynamic between them and their bosses. For example, research into workplace deviance by Lance Ferris of Singapore Management University shows a higher level of outright deviance among employees who feel they've been treated rudely or unfairly by their immediate supervisors. By the same token, there is nothing more motivating than recognition that comes directly from the higher-up who knows your work best: your manager. At that close range, a reward is a relationship-builder. Administered more remotely, as bonuses are, it's only a transaction.
What works better than an annual bonus, then? The answer is a more strategic, thoughtful approach to conditional rewards, involving smaller payouts given year round and, critically, targeting the vast majority of the workforce — not just a privileged few.
Of course, this raises the complexity level of performance management. At software maker Symantec, for example, it had always been a simple matter to give top performers non-strategic cash rewards. Now, through its Applause recognition program, the company spends the same basic amount of money on thousands of small acts of recognition, tied to important goals and values and dispensed through direct supervisors, each of them valued anywhere from $25 to $1,000.
The perceived difficulty of that task helps to explain why so many other companies continue to give out bonuses that lead to no real uptick in employee engagement or company performance. They're easy to administer. Management has decided it should institute pay for performance, and an annual bonus program is the simplest way to check off that box. But shouldn't more companies try to do better?
I'm interested in your thoughts. How does your company recognize and reward good work? And does that approach have any effect on people's everyday habits? What version of contingent compensation would engage and motivate you?