- It quickly becomes an expectation and entitlement, to the point where some have threatened to quit or even sue if they do not receive their bonus as expected.
- It disassociates the reason for recognition from the recognition itself. By the time the bonus is received, most people have forgotten the reasons they’re receiving the bonus. More to the point, you’ve missed out on multiple opportunities to encourage them to repeat desired behaviors or results throughout the year.
Yet the annual bonus remains one of the most common forms of employee recognition and reward. Now, new research out of Towers Watson shows annual bonus programs don’t even deliver the results we hope for. Why? Three key reasons:
1) Poor performance is rewarded – Even the lowest performers still receive bonus payout.
2) No differentiation in rewards – People at all performance levels receive the same payout.
3) Top performers are under-rewarded – The best employees receive less than target payout because of rewards given to underperformers.
(See the full infographic from Towers Watson here.)
And then fairness of bonus is also called into question by a recent report from the UK showing male managers earn average bonuses twice that of their female counterparts.
What’s the answer? Frequent, timely recognition and rewards throughout the year based on actual behaviors demonstrated and results achieved in the moment. Rewards should be clearly differentiated so significant accomplishments or contributions can be rewarded at a higher, more appropriate level than smaller, short term achievements.
While everyone is eligible to participate and potentially receive recognition and rewards, low performers will rarely if ever be recognized while high performers who frequently contribute at an above average rate receive greater rewards throughout the year. Critically, average performers are also recognized appropriately – more than the low performers, but no-where near as much as the top performers.
Do you administer annual bonus programs today? What challenges have you encountered? How have you solved them?
As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.