Bonus schemes – do we want them or not?
Bonus schemes are great when they’re offered. Even better when they’re received. Yet do you really expect a bonus scheme to be built into your employment contract?
Employers are not obliged to offer a bonus to any employee. But all employees are obliged to perform to the best of their abilities in return for a salary or wage. So why offer a bonus in the first instance? Many studies have proven the positive effects of employee bonuses upon work performance, however there are other ways to motivate an employee and raise productivity. Favouring the bonus, monetary or otherwise, requires consideration. Will you embed a bonus clause within the terms of the employment contract, creating an employer obligation? Or will you offer it separately as a discretionary item?
A discretionary bonus scheme in a separate document will detail conditions around the bonus scheme’s eligibility criteria and payment. It will state that it does not form part of the employment contract and may be withdrawn or amended at any time by the employer. Risk adversity at its finest, yet very smart business practice. Should the business experience financial difficulties, it is not compelled to deliver on the bonus offer.
Imagine for a moment that your employees are not interested in being offered a bonus. It would raise the question of why? Will the presence of a bonus scheme increase the pressure on expectations to perform to a particular level, thus result in them failing due to stress? How does this differ to the common KPI that is not linked to performance bonuses? Perhaps the best bonus that an employee could receive is that which is unexpected. A bonus offered in genuine thanks for their hard work and outstanding results will always be welcomed and appreciated. And the gesture will likely be repaid tenfold through greater commitment to the business.
One question that always seems to come to the fore when discussing bonuses is, is it fair? Well let me ask you this; are you going to offer a bonus to all staff or only a portion of your employees? As some employees may articulate this question; are you going to give me the same opportunity as all my work colleagues or are you going to discriminate against me by leaving me out of the bonus scheme? To ponder this from an employee’s point of view is certainly food for thought. Forcing yourself to assess if your bonus structure is discriminatory may reveal if you are setting the business up for litigation. It may also reveal that your organisation is not suited to a bonus structure.
A clever bonus scheme will not only be affordable to the business and achievable for employees, but it will be delivered in alignment with the broader objectives and values of the business. Generally a scheme will either reward employees for success already achieved, such as an end of year bonus for a profitable year, or will act as a catalyst to incentivise employees to achieve targets not yet realised. Working to a schedule you can motivate employees to achieve key performance objectives in a designated timeframe, thus providing a stimulus for improved future performance. But do you structure individual bonus schemes, risking employees working to maximise their personal gain, possibly to the detriment of their colleagues, or do you additionally factor in department or company wide results?
There is no doubt that everyone loves a reward over and above employment expectations outlined in their contract. Knowing you have to work hard for it can increase pressure. When it’s delivered as a surprise, the sense of euphoria can positively affect work performance for the long term. Yet devising a bonus structure to suit your business model may require a tiered reward scheme in order to provide everyone within the organisation an opportunity to benefit from their efforts. But while it is great for everyone within your organisation to focus on results, it is important that they also be driven to focus how they achieve those results. What type of organisational culture do you want your bonus scheme to generate?
