Reward manager Adam Fox-Everitt on why we need to rethink traditional bonus structures

Annual bonus schemes are one of the most common reward structures you’ll find. Across our departments, industries and continents we come up with clever ways to incentivise performance and reward our people for delivering the objectives our businesses hold most dear. Sometimes we reward the team, sometimes the individual, but for all the variety out there it’s surprising how many businesses still reward once a year.

Bonuses can be the ideal temporary motivator when they’re linked to a very specific goal. The key here is that the anticipation of our next bonus contributes far more heavily to our motivation than the feeling we got when we received our last one.

The perfect bonus scheme probably doesn’t exist. The same applies to the different methods of performance management. Good leaders recognise that effective performance management involves having multiple, ongoing conversations and creating a culture where feedback can be exchanged in a constructive way. However, most objectives don’t naturally culminate in a big end of year crescendo where everything gets reset ready for the next performance year, in reality they often span multiple years or are even continuous.

So if your bonus scheme is linked to performance and you’re trying not to manage performance once a year, why are you only incentivising employees on an annual basis?

Could a recognition-based scheme be the answer?

Technology and complicated processes were likely the limitations which got us fixated on the annual bonus scheme. However, what if the bonus budget was available at any time throughout the year?

What if leaders could tap into that bonus pot whenever a project gets delivered, a client is landed or a deal gets closed? Better yet, what about when somebody does something amazing that echoes the organisation’s purpose and values? An annual bonus can never reflect that achievement with any real emotion.

There are some important guiderails which suitable technology could enforce, fairness and equality must be front and centre along with budgetary controls. Line manager training and crystal-clear employee communication would be key to engagement too, particularly if you’re replacing an established annual bonus scheme.

Operating the bonus scheme as part of a recognition programme opens up so many more possibilities. It enables the bonus to really motivate people throughout the year, rather than just in those few months of anticipation before year-end, when the majority of achievements over the past 12 months seem so flat and two dimensional.

Cash is still king, but meaningful recognition isn’t all about the money. Another way that technology could support this alternative approach to rewarding staff is to allow people to use the bonus cash in other ways. For example, people could exchange their recognition bonus for vouchers to use at a particular retailer for a slightly higher cash value, they might invest directly into a share-save plan, top-up their pension or pledge directly to the organisation’s partnered charity.

Let leaders show they know their teams well by encouraging them to use the budget differently to recognise people individually by using it to buy concert tickets, guitar lessons or puppy training classes.

With some flexibility, the same bonus investment can appeal to needs (see Maslow’s hierarchy) greater than basic security, such as a sense of belonging, self-esteem and personal accomplishment.

Bonuses that offer a memorable and motivational experience

It doesn’t matter which values you’ve got plastered across your foyer or printed on all your coffee cups, a bonus is a powerful instrument which can really influence the way that our employees behave.

Our people aren’t protesting for us to scrap the annual bonus just yet, why would they? But rather than adding some extra cash into people’s payslips once a year, we can use the bonus investment more thoughtfully to give people a memorable, motivational experience which turns the anticipation model on its head.

The author is Adam Fox-Everitt, reward manager at Browne Jacobson.