As reported in personnel Today, XpertHR content director Mark Crail called the statistics around bonuses and underperformance “a culture of rewarding past glories”.
He said: “The biggest and most significant indicator of whether or not someone will get a bonus this year is whether or not they got one last year. The longer that goes on, the more people come to rely on the money and the harder it is to stop paying it.
The results are probably not that surprising, in that rewarding for performance is actually quite a hard thing to do, especially where objectives tend to be soft and often outside the control of the employee themselves.
As a practitioner in the field of HR I frequently talk with business leaders around the issue of performance related pay and often the main stumbling block is not agreeing the sum, but defining what the money will be paid for.
If you want to use performance related pay there are some golden rules that need to be followed if you want to link performance with a bonus payment.
Rewards are for extra effort – the whole point of a bonus is the payment for more effort and more achievement that you would get simply by offering pay. Its a reward for doing more, not doing the job. So avoid simply giving a bonus for something they already get paid for – the day job.
Less is more – people get distracted really easily so if you have targets or objectives keep them down to as few as possible – and ideally those that have the biggest impact. If you cast your net too wide all that happens is the employee loses sight of which objective is most important – so try and keep targets to a max of three at anyone time.
Managers need to own the target – targets are great but they need to be under the influence of the manager, i.e their actions or decisions directly affect the likelihood of the objective being met. If a manager does not influence the target but could get bonus from it, then you are open to the argument of ‘I did my bit, its not my we didn’t hit the target’ – then this becomes a demotivator rather than a motivator.
A great example is one of my clients that paid a bonus based on net profit. The company was doing well. sales were up, costs were down and all concerned had already worked out what there bonus was going to be. Unbeknown to them, the senior team decided to use the uplift in profits to purchase a new machine which wiped out the NP surplus, leading to a much reduced bonus payment.
Keep it transparent – visibility rules, if a bonus is to work the manager needs to be able to see how they are doing to hit the target. If there is a mythical formulae used to calculate it, with lots of hidden variable all that happens is the managers lose faith that they will ever hit it and so give up trying. Use simple excel sheets, existing performance data and simple formulas to make it work.