Can your employees tell the difference between a raise and a bonus?
For most, the only difference is that one of them is a lump-sum that they can use to buy that refrigerator they've been needing. After all, we often don't make much of a communication effort when we award bonuses. No wonder employees typically look at them as a gift, as the behavioral economists tell us.
Most employees don't really understand that business performance affects merit budgets. Why should they, since we don't talk about the linkage that clearly or candidly? And really, don't competitive practices drive the budget number as much as business performance does?
Employees understand the competitiveness factor, in a backhanded way. They want confirmation that the merit budget is the same as the one their neighbor's company--as well as your local competitors--is awarding. So, you could say that they are also checking that your company's performance matches your competitors, although not deliberately.
When it comes to bonuses, the understood link with business results is often sketchy, too. Employees remember their multiplier. When you communicate their annual reward, they want to know if they are getting that much or more. But does the bonus mean anything else to them? Anything about annual business performance, say?
If merit increases are about individual performance, bonuses are about team performance on the organizational level. The bonus should say to employees, "Look what we've achieved together!" But we often miss this chance by limiting the bonus communication to a five-minute, close-the-door-a-second chat on the run, where the manager tells employees their award and updates their performance feedback, and nothing more.
We miss this chance to build business knowledge, engagement and trust by treating bonuses this way. Companies that are effective at building a cohesive culture set the stage for bonuses by having the CEO talk with employees about business results before bonuses are awarded. They customize the messages to the Division or Function, if the bonus design deserves that kind of breakout.
Since everything we do in compensation is communication, we can count on our employees looking at their bonus as a gift (not earned, not achieved) until we start talking with them differently. Don't let the execs tell you that they can't help you with communications until the books are closed. They can give you enough of the big picture to get you started crafting a communication approach that will set the stage for bonuses in your organization. Business performance improves when employees know how their performance will impact business results--how's that for a rationale?
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at everythingiscommunication.com.
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