Article main image
Jan 9, 2014

Bonuses come in a variety of shapes, sizes, colors, flavors, and amounts.

Some companies offer regular performance bonuses, including the elusive on-the-spot bonus when the big boss walks by; other companies have a structured, period-based bonus program: did we hit our targets for Q1? Excellent  — everyone benefits; still other companies dole out bonuses once the holidays arrive (perhaps to meet perceived pressures of expectation).

That’s great and all, but not all of these bonuses engage — and those that do create quickly fleeting levels of engagement. What gives?

Are bonuses detrimental to employee morale?

Our conversation needs to go back to the discussion of the differences between satisfaction and engagement — the former being comprised of elements like compensation (both regular and bonus); the latter, of elements that directly impact levels of meaning, autonomy, growth, impact, and connection.

According to Lalin Anik and Jordi Quoidbach (in an HBR blog), “Individual rewards … have been shown to be detrimental to employee morale and productivity.” Roughly translated, that means if my boss decides to give me a bonus because I’ve worked hard, he should expect my performance to decrease.

I’m not sure I agree with that premise (if I did, I’m not sure I would want my boss to know).

Anik and Quoidbach proceed to promote a different kind of bonus program — “Provide [employees] the same bonuses with one caveat: they must be spent on pro-social actions towards charities and co-workers.”

That’s a nice thought and all, but subjecting all bonuses to said caveat is a recipe for disaster.

Enter Frederick Herzberg.

A hybrid program may be the answer

Herzberg’s motivation-hygiene theory (also known as the two-factor theory) introduces a set of factors like job security, compensation (read: bonuses), working conditions, and status, none of which provide positive long-term satisfaction, though the absence of any yields dissatisfaction.

By converting the company’s once-selfish bonus program into a pro-social campaign, you can bet employees will passively rebel. Removing a familiar bonus program (turned hygiene factor) will sharply increase levels of employee dissatisfaction. Since satisfaction and its contributing factors comprise the necessary foundation for employee engagement, matters will only get worse.

Instead of doing away with all individualized bonuses, consider creating a hybrid program: individual performance-based bonuses and pro-social initiatives. Anik and Quoidbach’s research quantifies the ROI of pro-social bonus programs: “on sales teams, for every $10 spent pro-socially, the firm gained $52.”

At DecisionWise, we recently held a pro-social on-the-spot bonus program called Amazing Acclaims. Each week, we each received five bonus tokens, which we were encouraged to give to colleagues when we caught them doing great things.

The program became an easy way for us to recognize each other and express gratitude for hard work. In addition to creating a social recognition program among colleagues, the program also helped us interact with and get to know other employees with whom we didn’t regularly work.

A foundation on which engagement can flourish

The result? Engaged employees who rewarded and recognized other engaged teammates for their efforts — a continual cycle, if you will. In addition, DecisionWise encourages employees to support worthwhile charitable causes by contributing to organizations of their (the employees’) choosing.

Though I can’t say Amazing Acclaims or corporate giving had a 500-percent ROI impact on revenue, they certainly did improve levels of engagement, which gets us back to where we started this conversation.

Though traditional bonuses don’t necessarily engage, they do create a foundation upon which engagement can flourish. Additionally, they serve as positive recognition for joint contribution to success.

What kind of bonus programs does your company offer? What are some other ways companies can make bonuses more engaging?

You can find more from Reese Haydon at the DecisionWise Leadership Intelligence blog