To Bonus or Not to Bonus

In recent weeks the public sector has got very confused about the role and purpose of bonus payments.  Perhaps the rest of us should be grateful we don’t have to make bonus decisions in the glare of the national media – for it is clear from many of the conversations we have every day with clients, that establishing the criteria and purpose of bonuses is a real struggle.

So one more time – money is not a motivator!  ALL the research shows that once people get beyond the ‘subsistence’ level of earnings, offering more money for achieving more does not result in a significant level of improved performance for any sustained period.

Some years ago, it was thought a good idea to introduce performance related pay to some areas of public service.  The idea was very beguiling: improve public services by setting higher performance standards, and offer a bonus if they are achieved.

The reality is of course rather more awkward – it now looks like bonuses are being paid simply for ‘doing the job’.

This is true in most organisations that operate a ‘bonus for performance’ – there must be a constant nagging worry that the level of performance would have been achieved anyway – without the bonus carrot.  And again – the research confirms that the carrot of more money does not materially affect performance – especially in well paid roles.

The only good thing about setting bonus targets at the beginning of the year, is that it forces managers to think about what ‘good performance’ would look like.  Now ideally, managers should do this anyway, but the reality is that many don’t.

There is no ‘ideal’ solution to bonus payments – it is clear that if one company pays significantly less than another down the road, for the same level of performance,  then assuming there are not significant other benefits to compensate for the difference in pay, the higher paying organisation is likley to be able to attract and recruit the best people.

So, by all means reward people for doing well, and definitely keep an eye on overall reward levels for your key people – just don’t expect a bonus payment to make a long term difference to performance.