It’s fair to say there’s been some disgruntlement around the subject of bonuses over the last five years or so. Naturally, it is difficult to blame average members of the public for taking issue with the size of the financial rewards handed out to city bankers, many of whom are perceived as being responsible for the economic quagmire we are only now starting to recover from. It is not only the banking industry that has come under fire, though. The series of episodes that has tarnished some of our previously trusted institutions has also cast considerable doubt on the value of bonus schemes across the wider business landscape. Whilst the importance of a well-motivated workforce cannot be overstated, questions have been raised about the future of financial incentivisation.
Yet, one only has to look at John Lewis as an example of how a bonus scheme can be operated with relative success. In that sense, it seems there is still a place for the bonus, but due consideration must still be given to a scheme’s implementation beforehand, especially for a start-up. “Very commonly a bonus scheme will be based on a percentage of company profit,” explains Caroline Griffiths, managing director of HR consultancy company, Bradfield. “I think that the construction of such a scheme does need to be approached with a degree of caution, because it is very easy to raise expectations and lead individuals to believe that they are going to receive a sum of money which then may not be forthcoming.”
Griffiths has certainly encountered her fair share of disastrous bonus schemes, and is therefore pretty vehement in her belief of when a company should introduce one. “I have seen over the years a number of organisations very enthusiastically putting together schemes of this nature, only to find that they don’t make profit and there is nothing to pay out,” she says. “And I think it is that kind of scenario that puts bonus schemes in disrepute. So I think companies should only put together bonus schemes if they are profitable and that they genuinely believe that payments will result.”
Of course, the fundamental purpose of a bonus scheme is motivation. But Griffiths is quick to distance traditional bonus schemes from a commission scheme, which is very specific in its design. She explains, “A commission scheme with a properly set target is, to my mind, the right way to remunerate a sales executive, because most sales executives are primarily motivated by money.”
The setting of clear objectives is also crucial to the construction of a viable bonus scheme, but the difficulty lies in gearing them to the needs and abilities of each and every employee. “You have got to base it on standards and objectives that must be specific, measurable, achievable, and realistic,” says Griffiths. “If the individuals don’t really feel that they can have a bearing on the performance of the company, then they won’t feel that they can have a bearing on their own bonus.”
It almost goes without saying that, should an employer feel the time is ripe to implement a bonus scheme, the money that’s on offer must be of a sufficient level to stimulate the performance of their team. “The output must have the correct value to make it worth putting in the effort,” Griffiths continues. “For example, if I say to you your bonus is going to be £100 for the whole year, that doesn’t really have sufficient value to make you feel that you want to put in the effort. So the numbers have got to be correct and they have got to stack up as well.”
Indeed, the very process of instigating a bonus scheme can give staff a clearer idea of what is expected of them, but more pertinently what the performance levels are that are required to merit financial reward. “It can quite strongly communicate to employees what behaviours and performance the organisation needs to be successful,” says Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD). “Employers have to be pretty confident and able to define what performance is, how they are going to measure and assess it, how they are going to manage it, and how they are going to communicate it to employees.”
On the flipside, due consideration should be given to the more unintended behavioural changes that could emanate from the introduction of a bonus scheme. “There have been examples of individual sales incentives that may mitigate against team working or customer service,” adds Cotton. “If you perhaps give a bonus that is too large, it may crowd out other required behaviours because employees just focus on this particular aspect, while a bonus that is seen as too little may fail to motivate or may be seen as derisory.”
Ultimately, the best bonus structures are those where employees’ focus is kept firmly on the task at hand, as opposed to their minds straying towards monetary matters. And it is up to the employer to keep a good handle on this. “I think that it is down to good management,” says Griffiths. “If staff are properly managed, then the quality angle shouldn’t suffer. In all of the organisations that we work with, we try to encourage a strong system of regular one-to-one sessions between managers and their reporting staff – and regular performance appraisals – so that quality of performance doesn’t suffer.”
Last but by no means least, transparency is everything with a bonus scheme, and for good reason. “I think you need to be clear about what performances and behaviour you are rewarding and why,” says Cotton. “You have also got to have some way of regularly reviewing the bonus scheme as well, so you can look at the overall bonus awards to make sure they are not inadvertently favouring certain groups of people, and that they are aligned to what the organisation is trying to achieve.”
When all is said and done, the implementation of a bonus scheme should send out a positive message about one’s enterprise. If it is a last ditch attempt to keep staff on board, there are probably other issues at play that require closer, and more urgent, attention.