Why Traditional Bonus Structures Don’t Work
Picture a large convention hall filled with salespeople. As an opener, the speaker on the stage asks “who wants to make more money?” The room predictably erupts. It’s sort of like asking a roomful of Star Wars fans if they like the Force. Asking people if they want to make more money is probably the lowest common denominator out there. What else are they supposed to say? No thanks?
(Yes, this really happened.)
So to get more out of people, many companies put in bonus plans. Hit some marks, get more money. Dangling a money carrot is an easy way to get people to chase their quotas.
Here’s the thing: bonus plans don’t always create the best employees.
Why are bonuses bad?
Bonus structures come with built-in limitations. Some are artificial, like escalators and unrealistic goals that make it hard, if not impossible, to make it work. Some have such delayed payouts that they don’t deliver much of a cause/effect impact on long-term performance. And team-based bonuses can reward many when the hard work is done by only a few. Besides, some roles just aren’t naturally designed for a bonus plan.
And who hasn’t seen what happens when Clark Griswold’s long-awaited year-end bonus turns out to be a Jelly of the Month Club?
Why don’t bonus plans work?
1. They cause stress
If you don’t hit your quota, you’re not making bank. Have a down couple of months, or the company hits a skid, and there goes your vacation fund. Or worse — your rent.
2. They cause plateauing
I’ve made my bonus for the month and I still have two more weeks to go. I can just skate by. Hitting your marks is the goal, not achieving anything more for the company or yourself.
3. They can set unrealistic goals that are hard to achieve for many
You might have your “heavy hitters” that can do enough to hit your marks, but others struggle to get there. Your bonus plan is more lip service than a real benefit.
4. They provide diminishing returns
People come out strong out of the gate and respond well to getting their bonus. But in time, the bonus isn’t enough for all but the most motivated to chase. Sales, revenues, and loyalty begin to crater.
5. They can be unfair
The sales team revels in their bonuses. The accounting team, the mailroom staff, and the research department all wonder why all the work they do for the company doesn’t give them the same rewards. Job satisfaction plummets.
6. Bonuses provide no feedback
You make your numbers, you get a bonus. You’re doing great work because you never miss your bonus. Well, not very often, anyway. You’re up to speed on everything that you need to do to grow here. Right?
7. Science tells us so
In 2017, The Human Resource Management Journal published a study that found that “performance-based pay” creates higher stress and lower job satisfaction. There’s pressure to hit your marks despite any outside forces. So if the economy slides, or if the company has a production issue or loses some big accounts, it hits you right in the wallet.
The Harvard Business School also found that there are some personality types who don’t respond well to such a setup. They’re far more comfortable with a reliable, unambiguous salary. Besides, many roles are hard to squeeze into a bonus plan based upon job performance.
Maybe different is better
So it’s time to get creative with how we reward employees. Money is really a finite motivator. You can bonus people to the hilt and it ultimately won’t move the needle at some point. The message becomes “do more work” instead of “grow.”
That’s the dirty little secret. People tend to crave growth as much as they crave cash.
Perhaps trying a new carrot will maximize the impact that you’re really trying to create — an energized, productive workforce who will go through walls to build a more productive, profitable company. Surprise.com has a different sort of reward system that builds a strong foundation of positive habits. You all get tons of feedback, teams work harder and better, and best of all, it’s sustainable. Everybody has a chance to be a top performer.
Traditional? No. Effective? You bet. Why not give Surprise a try for free today and see why bonuses are yesterday’s way of making teams more successful.
Don Seaman spends his professional life trying to put the alphabet into the right order to construct coherent thoughts that people can read. Now he does that for Surprise. You can find out more about this failed musician and retired superhero on LinkedIn and Twitter.