Contrary to marketing guru Seth Godin's opinion that bonuses don't motivate, there are many situations where bonuses are exactly the right tool for motivation. Seth states:
"But once people have joined your team, incremental money--bonuses and the like--usually demotivate people. They demotivate because sooner or later, people feel as though they're being treated unfairly."
Handing out bonuses work well for motivation in the following conditions:
- When they are based on merit or achievement and are delivered to the individuals or teams responsible for the achievement. This provides the top performers with something every employee desires: appreciation.
- When they are based on financial events, like a good quarter, and they are handed out to the entire company. This provides all employees a sense of being part of a team and part of company that is fair and willing to share the company's success with those that made it possible. Again it comes down to giving employees a feeling of appreciation.
- When they are used as a bridge across red-tape to bring underpaid employees closer to market pay rates. Sometimes it is easier for managers and HR to get authorization for a one time bonus than a large raise - especially when pay raises are capped below what is needed. Not only does this kind of bonus alleviate the pay disparity, but it shows the employee that their manager will do what it takes to treat them right.
- When they are used as short term fixes for bizarre market conditions. When the market conditions change, the company is not locked into a permanent pay disparity. In the crazy market of the late 90's, companies were better off paying bonuses to hire and retain highly sought employees than to lock in huge salaries that were unsustainable and then required the resulting layoffs to fix.
Salary increases, as soon as they are delivered, become entitlements. Bonuses do not, and so retain their ability to keep on motivating, retaining and showing appreciation to your valued employees.
I wrote an article about steps to maximize your next pay raise here.