Another Reason Why We Need to Ditch End-of-the-Year Bonuses

I’m on record with my opinion that cash-based rewards, particularly end-of-year bonuses, are a bad way to drive desired behaviors and actions year-round.

Just one reason why this is true is that people quickly begin to see their bonus as an entitlement – something they expect to receive every year (and in fact come to rely on as they would base compensation).

An example of this entitlement nature that truly takes the biscuit comes to us from the UK:

Bankers will sue if their employee rewards are not large enough this year, lawyers are warning.

A number of ‘disgruntled’ bankers will not accept bonuses that are lower than usual, legal experts warned, according to the Daily Telegraph.”

A system that’s gone off the rails

To be pedantic, the definition of bonus is “Something given or paid in addition to what is usual or expected.” Once people start suing to get something that is not supposed to be an expected entitlement, then clearly we can only conclude that the bonus idea has gone completely off the rails – especially in the world of banking and high finance.

And really, is anyone happy with the bankers of the world in today’s economy?

Article Continues Below

My CEO, Eric Mosley, recently had an article in Forbes on this topic: “Is It Time to Ditch the Annual Bonus in Favor of Recognition Programs?” Eric offers five quick tips on how to rethink bonuses to do what you most need – year-round reinforcement of great work and behaviors that demonstrate your values.

Give Eric’s article a read, then come back and tell me – do you think it’s time to ditch bonuses (before the entitlement gets even more out of control)? What would you do (or want) instead?

You can find more from Derek Irvine on his Recognize This! blog.

Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their company culture. As the Vice President of Client Strategy and Consulting at Globoforce, Derek helps clients — including some of world’s most admired companies such as Proctor and Gamble, Intuit, KPMG, and Thomson Reuters — leverage recognition strategies and best practices to better manage company culture, elevate employee engagement, increase retention, and improve the bottom line. He's also a renowned speaker and co-author of Winning with a Culture of Recognition. Contact him at irvine@globoforce.com.

Topics

3 Comments on “Another Reason Why We Need to Ditch End-of-the-Year Bonuses

  1. I completely agree that bonuses should not be automatically expected and should correlate to performance.

    However, a problem arises when a company makes an extra amount of profit and doesnt have any other purpose for it (i.e. there is no real need to invest back into the company), and so has the ability to reward employees with bonuses. Ive seen too many times that “poor performance” is just an excuse for higher ups to dole out the money among themselves and fatten up their own bonuses.

    Any comments on how to avoid this problem?

  2. Annual bonuses are an anachronism which persist due to the reason Dorsey states. One way to address their shortfalls is to institute either a quarterly or bi-annual pay for performance compensation program.  As psychological studies bear out, the closer the reward is tied to the behavior the more likely the behavior will be reproduced.  Three decades ago (seems like a life time ago) I instituted a pay for performance system in a regional medical center.  It was of course initially met with substantial resistance, but as the real benefits to the company and employees were explained, the program sold itself.  This was a quarterly reward program which was metric centric but the time spent quantifying was more than offset by vast improvements in patient care, cost savings, innovative thinking, etc, which had hard dollar benefits that annual bonuses do not address. 
     
    Now in response to Dorsey, the fund pool allocated for bonuses could be used to incent innovative thinking, stellar performance, and the like on  more frequent basis, while any unused balance could be directed towards charitable organizations – a tax benefit for the organization. I see this approach as a win-win-win for the company, motivated employees (as well as a disincentive for non-producers to stay with the company), as well as for charities which are in such need during these economic times.
     

  3. I agree with general idea, but wanted to add that bonuses may be a subject of some law provisions. At least parts of it are in my country, Slovenia. So we are usually careful to introduce some changes.

Leave a Comment

Your email address will not be published. Required fields are marked *