I have a friend who gets a bonus every April. Not sure why it’s April—seems odd that it wouldn’t be around the holidays—but she is thrilled nonetheless. However, she isn’t that happy with her job. In fact, right around September every year, I can count on getting a phone call that goes something like this:
Her: “I think I’m going to quit.”
Me: “Really? What’s wrong?”
Her: “I am just not motivated, I don’t like the work, etc., but I want to stay until April, when I get my next bonus. I have to stay until at least then.”
This cycle continues year after year. April comes around; she gets her bonus and enjoys a money-high for a few months…only to get job-depressed again.
This bonus structure is not an effective way to motivate workers, according to Pat Lynch, Ph.D., president of Business Alignment Strategies, Inc., a management consultancy in Long Beach, California.
“There has been a bastardization of bonuses—many people throw around the term,” she says. “Some companies give flat bonuses every year. Other companies say it’s a bonus when it’s actually profit sharing or a cost of living adjustment. Sometimes it is structured around company performance. This is not inspiring to workers.”
Lynch contends bonuses should be based on performance only—that employees need to know what they must do in order to deserve a bonus. She also guards against adding bonuses to a person’s base pay, which can cause the employer to over pay year after year.
Here are a few tips for setting up an effective bonus structure:
Lynch recommends asking yourself why you want to give a bonus.
“What is the result or behavior you are trying to affect? Focus carefully on what outcomes you want as a result of the bonus,” she says.
With your desired end result in mind, decide on a payment structure. Lynch advises giving a bonus close to the time of achievement or result was reached.
Pay along the way
Once you have your employees on board, incentivize them with small payments before the big money.
“Identify measures of progress and structure the bonus to make sure there are payouts along the way—it keeps people going,” Lynch says.
Make it attainable
There’s nothing worse than reaching for a goal and coming up short. Lynch suggests business owners make goals tied to bonuses contingent on a single employee’s achievements, not relating to others.
“Ensure the desired performance is under the employee’s control; don’t make the bonus contingent upon results or behaviors outside of their control,” she notes.
In addition, Lynch says it is important to make the desired outcome or project challenging—not too easy or difficult.
Consider collateral issues
You want to land new business, so you set up a bonus enticing employees to bring it in. There are other things to consider.
“If you offer a bonus to sales people for bringing in new customers, they will do just that,” Lynch says. “That can be good, but how are they taking care of customers once they bring them in? Consider collateral issues and be specific in exactly what you want from your employees.”
Check out these additional resources on the topic:
The Compensation Handbook, by Lance Berger and Dorothy Berger
Paying for Performance: A Guide to Compensation Management, by Peter T. Chingos
Solving the Compensation Puzzle: Putting Together a Complete Pay and Performance System, by Sharon K. Koss, SPHR, CCP.