When do bonuses become run-of-the-mill compensation? When there’s no mystery about how much they’ll be and when they’ll arrive. Here’s a better way to structure your bonus pay.
Change things up regularly — so employees continue to think of them as bonuses, not part of their annual compensation, suggests Lance Haun, human resources generalist and community director for ERE.net.
The last thing you want is for employees to become dependent on cash rewards, because if tough times hit — and the company has to close its pocketbook — things could get ugly.
Haun uses the famous character of Clark Griswold from the film National Lampoon’s Christmas Vacation to prove his point. Griswold (played by Chevy Chase) felt so entitled to his Christmas bonus that he put a down payment on a swimming pool — before receiving word about his bonus.
Then what happened? His company decided to give out a non-cash reward (more specifically, a gift membership to the Jelly of the Month Club), and Griswold became irate.
In Haun’s eyes, Griswold’s employer did three things wrong:
- It gave its employees large cash bonuses for so long that they began to feel entitled to them — not to mention (at least in Griswold’s case) dependent on them
- It did not announce the change in the bonus structure, and
- It switched to a non-cash reward (iPods, gift cards and company swag is OK — but only if that’s what employees want. And chances are if they’re used to cash, none of that is what they want.).
Keeping cash as a reward, not a given
There are some things employers can do to remove employee entitlement from the cash bonus equation altogether.
Here are some of Haun’s suggestions:
- Differentiate the rewards. Pay out different amounts to employees every time so they don’t feel like they’ll get the same thing every time. This will also make the bonus more of a motivator to improve performance.
- Give bonuses out at different times. Random times help take the entitlement factor out of the equation completely. This will also decrease people’s dependence on the bonus, because they won’t be able to pencil it into their budget at the same time every year.
- Set a limit. Don’t give huge cash rewards. Set a max on the amount you’d give out at one time, something like 10 percent of pre-tax earnings is a good place to start.
Source: “When It Comes to Workplace Incentives, Just Show Me The Money,” Lance Haun, TLNT, 1/28/11.