Why Year-End Bonuses Don't Work

We give holiday bonuses credit for a lot of things: they recognize hard work and productivity, celebrate results, lift employee satisfaction and show appreciation. Or do they?

There's no doubt a check in hand will boost anybody's morale - at least temporarily. If your year-end bonus is a gift, then give it in the spirit of the season.

As a reward, however, year-end payouts have limited success; people are happy enough to have the money, but studies have shown financial incentives are poor motivation. Worse, they can lead to negative effects.

This doesn't mean your staff doesn't deserve to be rewarded, or that you should let their contributions go unrecognized. Instead, it's a call to abandon lump sum compensation in favor of year-round incentives that are more effective - and more valued - for you and your team.

Six months from now is too late.

Today's workers expect feedback when something happens, not six months down the road.

Cash is one reward that's easy to appreciate. We recently added a spot bonus feature to ZenPayroll that makes it easy to reward someone for an achievement at any time. The business owner can decide to put in a gross, or a net amount, and we automatically calculate taxes on the spot. It's immediate, and linked directly to an employee's actions.

Money isn't the only thing people value, however.

A heartfelt thank you, recognition by peers, lunch with the boss and opportunities to learn can be significant ways to celebrate accomplishment - and if cash flow is a concern, there's nothing to stop you from being generous with meaningful gifts that don't cost a dime.

Year-round recognition has more impact.

By implementing year-round recognition and spot bonuses, you can tie rewards directly to results - quickly, clearly, and away from the stress of year-end.

The goal of an effective recognition program is to help people feel good about their contribution to your organization's strategic goals and to reinforce their hard work, innovation and achievement. But how do you do that? Here are a few suggestions:

1. Be transparent, with well-defined objectives. It's easy for rewards to be seen as (or to become) subjective, so create a program that's open to everyone, and make sure there's a clear process for earning merit and calculating benefits.

2. Link recognition to your strategic goals. The people on your team want to know that the work they do has meaning, that they're working toward a larger goal, and that they're not just spinning their wheels. As it is, most employees feel disconnected; in a survey by Root Inc., 40 percent said they didn't get or had never seen their organization's vision. Look for opportunities to show everyone how their role ties into the big picture.

3. Provide feedback and recognition in a timely way. Immediate feedback isn't just about getting a pat on the back; employees want to know what isn't working and, specifically, what they can do to fix it. While bonuses are meant to encourage particular actions or types of behavior, make sure your whole feedback loop is working well.

Year-end bonuses are popular in part because business owners know exactly how much cash they have on-hand - but I think it's time to shift focus. Small and meaningful rewards, distributed year-round when merited and bound directly to strategic goals, will do more to improve results over time than any holiday payout ever will.

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