Yahoo Finance Why giving staff bonuses is riskier than you think
Scrapping fixed bonuses and letting managers decide could help motivate top staff.
A study by Rebecca Hewett and Hannes Leroy at the Rotterdam School of Management at Erasmus University (RSM) suggests staff are happier receiving high bonuses based on their manager’s discretionary judgement than ones based on formal criteria.
Office workers interviewed by researchers were more likely to say they felt their bonus was fair, and this increased their intrinsic motivation to excel in their work.
But the finding comes with a significant catch. The research also suggests manager discretion is only perceived to be fairer and has a motivating effect when employees benefit from it.
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For those who lose out by receiving less money, a system based on managers’ discretion can have the opposite effect, with decisions seen as less fair and employees more likely to feel at odds with the organisation.
The study focused on actual bonuses given to office workers by a UK government-funded organisation which employed 733 staff at the time of the survey. Hewett and Leroy asked 155 staff to report their motivation levels shortly after receiving their bonus.
The researchers said several Fortune 500 companies have already reported making a shift towards managers using their discretion when allocating staff bonuses in recent years.
“Organisations are increasingly interested in creating work environments to encourage passion, purpose and engagement,” said Leroy.
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“These factors are about engendering intrinsic motivation – doing a job because it aligns with who you are and your core interests and values, rather than pursuing work-related tasks for extrinsic reasons.”
Hewett added: “Performance bonuses should recognise employees’ unique contribution to an organisation – yet this is difficult to execute using formal measurements alone. The research therefore highlights that bonus systems are, by nature, not put in place to treat everyone equally – someone always loses out.
“If your goal is absolute equality, then bonuses are perhaps not the best tool, but if your goal is to motivate the better performers, then allowing managers space to use their discretion is a good thing.”
