One of the main reasons we go to work is money. As Abraham Maslow theorised back in 1943, we all need to take care of our basic needs, and money helps us achieve that. After the essentials are taken care of and we earn a bit more, we start thinking about long-term security and equity with our peers. Then up the chain we go, and as we become more valuable as an employee, the rewards start becoming more linked to self-esteem and ego.
Today, we find ourselves in a unique situation where at close to peak employment in New Zealand, growing numbers of employees are considered highly valuable to employers and companies are desperate not to lose them. Therefore, just like a demand/supply curve straight out of Economics 101, the rewards are rapidly on the increase, along with egos.
While challenging for business owners, this is great for employees of course, as it is a nice boost of self-esteem when people are willing to give you more money. It says ‘’I’m more valuable” and allows you to finally go and buy that new Ford Ranger you’ve been eyeing up. Which in turn will demonstrate to other people just how valuable you are.
So, salaries in NZ are on the rise, which I think has been quite clear to most people for some time now, however another phenomenon that is making a resurgence, and what prompted the writing of this article is the recent increase in companies offering employee bonuses of varying types.
Bonuses – are they making a comeback, and do they work as employment tools? Let’s explore.
The performance bonus
Personally I’m somewhat torn on the idea of performance bonuses, as I’ve seen different sides of the coin. Firstly, having worked in recruitment for the majority of my career, I’ve been remunerated with varying degrees of commission-based or at-risk pay. This common in sales-related jobs. I like being rewarded in direct proportion to performance, think it is generally a good way to pay people, and fortunately in the agency recruitment world performance is relatively easy to measure.
Conversely, the problem with performance pay is that for most jobs it is often very difficult to measure, fraught with bias and is highly subjective. During my previous experience working at a large corporate I saw the unfair way that such rewards can be doled out. Names on a spreadsheet ranked and chopped up on a bell curve to decide who received any type of annual performance bonus, all at the whim of the HR department and woe betide anyone who worked for one of those managers that stoically said “I don’t give anyone a 10/10”!
Annual bonuses used to be quite common for many companies and paid regularly, but have been much less part of remuneration structures recently, particularly by companies with lots of shareholders. Many private companies still pay good annual bonuses, usually linked to overall company or business unit performance rather than individuals.
So do they work? It all depends. If the bonus is specifically related to a short term goal and everyone has the same opportunity to achieve it, then it can be effective. However once the money has been dished out, it may be the opportunity for staff to cut and leave, especially if they didn’t receive much, or any money. Mind you, if they weren’t performing maybe you’re not too upset about that.
The retention bonus
This is making a return thanks to Covid. In every industry around the country, and around the globe, new positions are being filled from competitor’s staff ranks due to lack of applicants. People are getting a little upset about it and crying foul – ‘poaching’ is what its known as – such a dirty word (crying fowl?). Really its still about people leaving jobs they don’t like for better opportunities but blame who you want.
Obviously, employers have reacted and started to pull out all the stops to stem any outwards flow of staff resources, hence several of my candidates recently have disclosed that they are suddenly being re-courted by their organisation with retention bonuses, for up to 3 years.
As with any bonus, this will make the employee feel valued and good about themselves – for the short term at least. However employee retention, as I have discussed before many times, is very rarely about money. And herein lies the main issue with these bonuses. Research suggests that while sporadically there may be positive outcomes from trying to retain employees with money, essentially you are rewarding people for doing absolutely nothing.
One might suggest that throwing money at staff to stay with their organisation is simply a substitute for good management, a great working environment and positive company culture. There are a multitude of ways in which businesses can encourage loyalty that aren’t taxable, some of which I have discussed in other articles.
In previous boom markets I’ve worked in, I’ve seen these bonuses dished out before. Both for ‘high-value’ staff members and quite often when certain employees have been relocated at the company’s expense and locked into a claw back plan that diminishes over time, stating that the employee must remain employed for a certain period or reimburse the money. These very rarely worked. Because if another company thought that such a person was that valuable too – they just found a sign-on bonus that happened to be the same amount that the original company wanted back. Even stevens.
The sign on bonus
How good would you feel if you received a bonus the day you started with a company? Lots of people feel joy walking into a new job even without extra money, but it couldn’t hurt right? Usually, the sign on bonus is only brought out in exceptional circumstances when the company must stump up to cover some extra costs like the aforementioned, or to push up the annual remuneration to secure a candidate without affecting the fixed salary costs so that no-one gets their noses out of joint. And while on occasion, it’s paid out to lure an absolute superstar on board, this is very much the exception, and the reality is that it has the propensity to cause more trouble than what it’s worth.
Because if you think about it, would you be happy if you knew someone that does the same job as you just got paid a lot of money for simply agreeing to start working with you? Possibly not. How much better are they? Are they really bringing that much value to the company?
The underlying issue with bonuses is that they often aren’t fair, or at least not perceived to be fair. Equity is such an important part of morale at work, and if certain groups of employees do not qualify for a bonus and they find out others have received one (which they will) then they will become resentful and less collaborative. While they provide a generous hit of dopamine for recipients, this is short-lived and does not cover up for any less-than-ideal work environment.
In an easy to measure job, with very clear-cut transparent outcomes, equitable criteria for staff, and good performance management, they can work. But just like our current government maybe should do - beware of the unintended consequences that come with throwing money at a problem! Nothing signals more to recruiters and hiring managers - ‘’Superstar Employee” like one that’s just been given a huge bonus. Just sayin’.