When Bonuses are the Answer

In a perfect world, every employee of a company would come to work every day with the same dedication, passion and drive for success as the owner does. That means employees—from the most entry-level position all the way up to senior management—would treat their jobs as if their name hung outside the door and need little or no motivation other than pride and a desire for excellence to perform their best.

Alas, the world works differently. Even the best employees of an organization need to be motivated from time to time, and sometimes the entire workforce of a company may require a boost in morale. For an entrepreneur, small business owner or executive manager, however, employee motivation can prove a challenging problem.

Link Rewards with Performance
One of the most common misperceptions when it comes to employee motivation is that the answer lies solely with money. Give people more money, the theory goes, and they’ll be grateful and work harder. The fact is, study after study shows that money is not one of the top motivators for many employees. Often, intangibles such as respect, opportunity for advancement and acknowledgement of individual contributions rank higher than money alone when it comes to job satisfaction. A 2005 study of Canadian workers for the National Bureau of Economic Research, for example, found that if job satisfaction for a particular job were reduced from nine to eight on a 10-point scale, income would have to be increased by more than 50 percent to compensate.

That’s not to say money, particularly in the form of bonuses, doesn’t motivate employees at all. It does. But even when giving out bonuses, there are some useful guidelines to follow that can help increase the likelihood they will have the desired effect.

One key idea is to link bonuses with a job well done. “The key to using raises and bonuses as a means to motivate employees is to make sure that they are quantifiably linked to performance results,” says Donna Flagg, a workplace expert and principal of The Krysalis Group, a human resource and management consulting firm in New York. “To specifically use it to boost morale, the employee receiving the compensation must be clear that they are being rewarded for his or her contribution.” The more specific the behaviors can be identified, Flagg says, the better the rewards will be linked directly to morale.

As well, Wendy Barlin, a certified public accountant in Los Angeles who often works with clients to put bonus systems in place, suggests letting employees have a say as to how and when bonuses are given.

“Consider allowing employees to set their own goals to meet rather than you setting goals for them,” Barlin says. “Of course, their goals must be in line with those of the business. But setting goals should not be something team members have no control over, or else there will be no ‘buy in’ from them.”

Find Values Beyond Money
Outside of giving out bonuses, the key motivators for many employees can be found in the kind of compensation that doesn’t show up in a bank statement. Often times, these motivating factors involve intangibles, such as respect, encouragement and a sense of family in the workplace, which can prove tricky for an entrepreneur or manager to employ.

But by creating an environment where these factors flourish, a company can increase the possibly of keeping valued employees significantly. A 2006 study by the Gevity Institute at Cornell University shows that companies that solely use money to motivate people pay higher wages than their competitors and can suffer a higher voluntary turnover rate—by as much as 19 percent—than companies that create a “family-like” community in the workplace.

So how can a manager or owner create the kind of environment that motivates employees beyond bonuses? For one, find out what your workers really value and make adjustments to your policies, says Roberta Chinsky Matuson, principal and founder of Human Resource Solutions, based in Northampton, Mass. “For example, if employees need a flexible work schedule to accommodate their family life and you can provide this, then do so,” she says. “This may mean more to them than a raise or a one-time bonus.”

As well, giving employees an opportunity to make a contribution to the company and recognizing them for their efforts can pay big dividends in the long run. “Too many organizations mistakenly believe that giving employees raises and bonuses will motivate employees and keep them productive,” Matuson says. “In the short run, such as the first month or two, this may work. But it doesn't take long before they can forget about the money and they start complaining again about matters that really count.”