8 Reasons Why Your Employee Bonus Plan Isn't Working.
Updated: Oct 27
8 (yes eight) Reasons Why Your EMPLOYEE BONUS PROGRAM is NOT Delivering the Results You Want and Need.
For many of us, now is the time of year that we are sitting down to calculate employee bonus payments. Some of us feel good about the cheques that we are writing. But some of us aren’t too happy because we don’t believe that we are getting any Return on our Investment. If you are at your desk today and not enjoying stroking thousands or tens of thousands of dollars’ worth of employee payments read on for some tips on what may be wrong with your Employee Bonus Program.
Before we get into this too far, let’s first define what we are talking about. We are not talking about random payments that we give to our employees because it’s that time of year, or because we want to feel like Santa Clause. We are talking about Bonus Payments that you give because you want to incentivise or reward your employees for certain behaviours, activities or performance. In other words, you are giving something (cash) to get something (improved performance).
So here are 8 (yes eight) Reasons why you may be crying at your desk today:
1. Connect the Dots
The number one reason that employers are not getting anything out of their Bonus or Incentive Plan is that there is no tangible connection between the reward the employee receives and what the employee needs to do to earn the reward. The employee does not understand the connection, or there is no connection between their performance and the bonus payment. Deliverables, goals or behaviours have not been clearly defined and communicated by the owner or manager to each employee. Therefore, the employee does not know what can be done better to achieve the bonus so they continue with the status quo….and so do you. And that is writing cheques that no one seems to understand.
2. You are Santa Clause!
Related to the first reason, employees begin to expect bonuses every year because they get one every year no matter how they perform or how well the company performs. Again, bonus metrics have not been clearly determined and defined by management, so employees learn just to expect ‘something’ every year. It’s like Christmas in your home, if you are part of the family you get gifts under the tree, no matter if you were ‘good’ or not. Likewise, because you always give out bonuses to your staff, they begin to expect one because they are a member of the business. Not sure about you, but in my experience, ‘just because’ isn’t much of a motivator.
3. Missing the Mark (Wrong Reward)
Many of us bonus or incentivise our staff with money, and often only money. It’s easy and tangible. However, numerous studies have shown that money ranks fourth or lower on most employees list of what motivates them or makes them happy or fulfilled at their job. But let’s face it, handing someone a cheque is a lot easier for an owner or manager than helping someone feel fulfilled at work. So while we continue to write cheques, we may be better off asking our employees what motivates them, and reward them based on what they want, not what our habit may be.
4. Who’s Driving the Bus?
If we are building our bonus or incentive plan around goals that an employee can’t control or can’t have influence over, we are making a mistake. It’s like telling a bench-warmer on your team to really work hard training and lifting weights and working hard at practice so they can win a championship ring at the end of the season. The only problem is, that bench-warmer knows they will never see any game action, and therefore, have minimal influence to achieve the goal. So winning a championship is completely out of their control. Will they be motivated to bust their butt if they have no control over the outcome? Likely not. And neither will your employees.
5. That’s All I Get!?
So again, we are talking about monetary rewards. It’s been shown that an annual bonus that is 8% or more of an employee’s annual salary will be a large enough reward to motivate the employee to achieve a goal. Less than 8% and it’s a maybe. Less than 4% and you are likely wasting your time and money. So, if an employee makes 100K a year, the annual bonus up for grabs should be north of $8,000. That’s not chump change for most of us. That’s a serious cheque to write. Sobering isn’t it? So if you think of rewards in those terms, and multiply that by the number of eligible employees, that’s a pretty big number. So you need to be on top of your bonus program and design it to the rewards are big enough for the employee while the gets the results that make the whole thing affordable and worthwhile.
6. Road Blocks
Bonus programs often fail because they ignore the obstacles, problems and constraints that exist within a business or organization that get in the way of the employee excelling at their job and being in a position to freely pursue the bonus. Think of it this way, if you incentivise an employee to dig a hole 100’ by 100’ and 5’ deep, but you only give him a spade shovel to do it, is that a problem for the employee? Will the employee achieve the goal? But if you give that employee the correct tool, like a front-end loader, the employee is more likely to dig the hole, dig it to specifications and in the amount of time that you have allowed. What constraints may exist in your company that prevent your employees from achieving goals and targets and therefore work to lower your employee’s motivation?
7. Vanilla Ice Cream
What I mean by this is that under your current bonus plan, everyone gets vanilla ice cream. Underachieving employees get the vanilla ice cream, and achieving or over-achieving employees get the vanilla ice cream. If this is the case, how does it motivate a high achiever in your organization to go out and kill it to get an extra 8K bonus, when the under-achiever gets the same 8K for being…well…vanilla. And why would the average employee work any harder if they know they get the same bonus as the top employees. Give it some thought. Maybe a few banana splits are in order?
8. That Dude!
Ok, here’s the tough one. This one that is hard to fix, but you know it’s true. You’ve hired the wrong type of people to work in your company or organization. No matter what you do, or what you have tried (and you have tried a lot), no bonus plan seems to motivate your employee or group of employees. You keep shelling out money for the same lacklustre performance. It’s like paying for a steak to get a cheeseburger. C’mon man! Well, you know where I am going with this don’t you? You don’t have enough money to get a third or fourth line employee to care. So give it up. Stop paying these type of employee’s bonuses and rewarding them for underperforming behaviour. How can that possibly help your company? Short answer, it can’t! You are better off to use this money to buy a robot, or reward your more employees that bring results.
So there you have it. The cold hard facts. The 8 Reasons that your Employee Bonus Plan isn’t working and why it needs to be changed.
About the Author
Chris Hall is a Senior Business Management Consultant that has helped business owners, leaders and managers across most industry sectors achieve more profitable and productive businesses. You can PM or follow Chris on LinkedIn or log onto www.abbusinessbuilders.ca