What to do about bonuses

A client, a medium sized distribution company, invested considerably in human resources programs, and it had a loyal base of engaged employees. It had a talented Human Resources Manager, and a well developed set of HR services.

However, when it came to designing a bonus program for its employees, it offered a Christmas bonus not tied to individual or corporate performance. The company paid this bonus out to employees for several years. One year, the company experienced a decrease in profits and decided to decrease the employee bonuses to a more affordable amount.

The employees’ reaction was very negative. After several years of receiving bonuses that were not linked to performance, the employees felt entitled to the bonus and considered it more like a salary than a bonus.

This kind of situation is actually quite common in mid-sized organizations. Many organizations that otherwise offer fairly sophisticated human resources programs don’t link their bonuses to individual and/or organizational performance. Failing to do so means employees don’t connect their individual and collective contributions to the bonus being paid to them – a formula for entitlement.

Bonuses should be carefully designed, and payout should be linked to measurable results.