Why You Should End Your End-of-the-Year Bonuses

In my reader just yesterday, I had several articles pop up on bonus compensation plans for the end of the year.

At first, I was hopeful. Have organizations finally figured out that lump-sum end-of-year cash bonuses fail on multiple levels and so are turning to a rewards approach proven to be more successful?

Have organizations finally decided to overthrow these compensation holdouts in favor of:

  • Year-round recognition and rewards given in a timely manner?
  • Recognition and rewards linked to individual performance and effort, not just results?

Are bonuses simply entitled compensation?

Simply Sadly, no. At least not in the U.S.

This MSNBC article makes it clear bonuses on Wall Street are indeed projected to be less this year, but only because corporate results are also down – not because of a re-evaluation of this misguided approach.

There is perhaps hope, however, in the U.K. Thompsons reports bankers bonuses are set to fall, even as they anticipate an increase in base pay. I agree with this approach. Bonuses, which can play an appropriate role, have become such a derided rewards strategy (and appropriately so) because they have been misused for decades as compensation (especially in the banking and finance industry).

I’ve long argued that base compensation must be increased to appropriate levels so bonuses are not the expectation of entitled compensation they have become.

Deloitte’s promising new bonus system

Then additional UK news from Employee Benefits about Deloitte further raised my hopes. The article relates:

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“Under a new talent and reward strategy, Deloitte is changing its bonus structure to reward employees based on performance. … The new bonus structure is not set as a certain percentage of salary, but as a commitment to include all staff in the firm’s success.”

By replacing an old system under which employees would receive a piece of the bonus pie if the company hit its annual revenue targets, Deloitte also eliminates the possibility of rewarding deviant behaviors in which employees might ignore company values in order to achieve results targets and get their bonus.

Here’s the challenging part of Deloitte’s new plan:

[Deloitte UK head of HR, Stevan] Rolls said: “Performance will be based on a number of objectives, and on the competencies, skills and behaviours staff have shown in delivering those objectives.”

I would hope Deloitte is including demonstration of its core values as part of those objectives and behaviors. More importantly, to achieve greatest program success Deloitte should not rely on the input of one manager at the end of the year for performance assessment, but rather encourage all employees to recognize and report on colleagues’ successes and behaviors throughout the year.

Of course, the greatest benefit would be realized by spreading out that “bonus” budget investment throughout the year in the form of immediate rewards and recognition, but it doesn’t sound like the program is quite there yet.

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

Derek Irvine is senior vice president of client strategy and consulting at Workhuman, where he leads the company’s consulting and analytics divisions. His writing is regularly featured across major HR publications, including HR Magazine, Human Resource Executive, HR Zone, and Workspan.