Organizations need to make clear that bonuses are based on performance and are not entitlements.
ast year, Google sought a new way to recognize and reward employee
innovations. It introduced a program that doesn’t bestow low-cost rewards like
extra days off or vendor-provided tokens like engraved trophies. In a time when
consultants extol the virtues of intangible rewards, Google chose monetary
bonuses.
Last year, the company presented its first two Founders Awards, totaling $12
million in restricted stock that will vest over four years. One award, for
example, went to a team that developed new advertising technology.
Cash bonuses may seem out of vogue in an era of financial conservatism. After
four consecutive years of increases, the percentage of organizations offering
performance-based cash awards, discretionary bonuses and other forms of variable
pay has leveled off, according to WorldatWork, a nonprofit compensation and
benefits association. In 2005, 76 percent of organizations are using variable
pay, compared with 76 percent in 2004. But management consultants say cash
bonuses can work effectively if designed, communicated and monitored correctly.
Psychologist and management consultant Aubrey Daniels recommends setting
criteria for earning bonuses and then awarding points to employees as they move
closer to reaching the threshold. That way, workers see their progress and get
positive reinforcement immediately.
"Bonuses that are not tied to some type of point system are a waste of
money," says Daniels, author of Measure of a Leader. If there's not a point
system, Daniels says, "if you don’t get the bonus, you feel like management is
being mean or arbitrary or stingy. And if you get it, that’s what you expect.
But if you set up criteria that say, ‘Here’s how you earn this bonus,’ if you
don’t earn it, the reason is simple: You didn’t do what is listed here."
Bonuses should be tied to the work’s impact on the overall business, says
Chris Ellis, a senior vice president with Sibson Consulting. Organizations need
to make clear that bonuses are based on performance and are not entitlements, he
says.
"It’s incredibly important that the company continuously communicate the
intent behind the performance-reward program and communicate at award time why
the award is lower than expected, higher than expected, right on--that there is
an ample amount of communication around why the pay is what it is relative to
performance," Ellis says.
Traps to avoid include having too many measures, treating bonus programs as
static policies rather than strategic activities that require ongoing
monitoring, and not measuring the return on investment, Ellis says.
Cash bonuses aren’t right for every situation. In his book 1001 Ways to
Reward Employees, Bob Nelson says a drawback of cash-incentive bonuses is that
they have no lasting value that reminds recipients of the recognition and
becoming expected rewards.
"If you give an employee something that looks like compensation, feels like
compensation and smells like it," cautions Christi Gibson, executive director of
the National Association for Employee Recognition, "it is compensation, and
they’ll expect it year to year."
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