Do bonuses make a difference?

Emloyees are motivated by a range of factors but it is not clear that ad hoc rewards really rate.

A selection of Cartier watches

Cartier watches aside, there’s a bigger community conversation brewing on bonuses at a time when COVID-19 has spread fear among workers.

The idea that workers should be rewarded for going above and beyond is fair enough, except that in 2020, that would mean handing out bonuses to almost every Australian who has hung on to a job these past few months. So many have had to work in difficult circumstances and in many cases pick up the work previously done by a sacked colleague, that one could argue they all deserve a reward.

Not that most of them are looking for more. All the feedback and research suggest that when times are tough, employees are so relieved to be working that they are happy with a pay packet and more inclined to take on face value the boss’s line about not being able to pay bonuses.

In reality, some workers who have had no change to their jobs will suffer a decline in real income this year, because their companies have used an annual bonus in lieu of an annual rise. It means employers can pull the string tighter if need be, and this year, it certainly needs be.

For workers who have factored in extra money, no matter how small, year after year, it will be a shock, albeit one many will accept as the price of the pandemic. It’s why structuring remuneration as pay plus a bonus depending on effort or results, does not really cut it for people who are not highly paid in the first place.

It’s like investing in shares — only worth it if you are financially able to lose all the money you gamble. Bonuses are great if they are in addition to wages, but their effect is complicated when they become regular — and then suddenly stop.

There is much management literature on whether the carrot of a bonus actually improves performance. In a Harvard Business Review article almost 30 years ago, Alfie Kohn, an education and management consultant, wrote: “It is difficult to overstate the extent to which most managers and the people who advise them believe in the redemptive power of rewards” before stating that “according to numerous studies in laboratories, workplaces, classrooms, and other settings, rewards typically undermine the very processes they are intended to enhance”.

The problem is if we anticipate a reward and then don’t receive it, we feel we have been punished. “Whether the incentive is withheld or withdrawn deliberately, or simply not received by someone who had hoped to get it, the effect is identical,” Kohn wrote. “And the more desirable the reward, the more demoralising it is to miss out.”

The other truth bosses face is that bonuses, just like pay rises, have a limited life in terms of gratitude: they are quickly absorbed and quickly forgotten. It’s true money can make a difference when it comes to deciding whether to take a job. But motivation is another thing again. It’s not clear that people put in 110 per cent to win a bonus or because they are passionate about the product.

None of the above is to argue against rewards — whether as gifts, as cash or even as extra time off. It’s just that trying to structure them to manipulate behaviour may not work.