I have written for many years now that end-of-year bonuses are a waste of money (“OOPs! 13 Management Practices that Waste Time and Money (and what to do instead)”). Given that they don’t achieve the objectives that are usually stated (loyalty, engagement, performance improvement), why do organizations continue to give them? This practice appears to have begun at the turn of the 20th century when employers began offering employees a cash bonus in lieu of traditional Christmas offerings such as turkeys (which were later discovered in trash bins) and even watches, gold coins or other items. While these were intended as tokens of appreciation for employee efforts and as a motivational device, they fell short of their intended effect and, thus, the end-of-year bonus was born.
Just this week, Random House, coming off a very good year as a result of selling more than 20 million copies of the book “50 Shades of Gray,” gave everyone a $5,000 bonus. While I am sure that employees liked the money because everyone except the baby in the Jimmy Fallon commercial for Capital One likes cash, is it a wise use of money for the company? While I have no problem with the amount, I do have a problem with the way that Random House and many other companies pay out the money. Take Google for instance. In 2010, the headline read “Google Gives All Employees Surprise $1,000 Cash Bonus, 10% Raise.” What is wrong with that, many might ask? Plenty, actually.
Since rewards tend to strengthen the behavior occurring when they are delivered, the money falls equally on the hard working and the hardly working. While HR might say that it is a fair thing to do, I might remind them of a famous statement attributed to the legendary coach of the Green Bay Packers, Vince Lombardi, “There is nothing more unequal than the equal treatment of unequals.” If everyone is equal in pulling his weight, then the way that Random House or Google distributed their bonus money isn’t so bad. However, since nearly all of the engagement surveys indicate that, by their own admission, less than 40% of the workforce admits to being fully engaged, the evidence indicates that all are not equal. With a complete understanding of positive reinforcement, you will know that good employees receiving a bonus will continue to be good employees and probably like the company more for it, but employees that are not fully engaged will continue not to be fully engaged.
The only behavior required for participating in these plans is “being on the payroll at the end of the year.” Bill Abernathy, author of “Sin of Wages,” calls this “show-up pay.” While some executives might say that being on the payroll is enough since long-term retention can be a problem, it is not unusual to find employees who wait until after the bonus is paid to quit.
Some might also say that it was a generous act on the part of the company. While that point is debatable, research shows that non-contingent reinforcement may actually cause a decrease in performance. As I stated above, money that is not earned reinforces the behaviors occurring when it is received, not necessarily those intended by management. An unhappy employee receiving an annual bonus may well become more unhappy.
One company we worked with received many complaints (more than 100) indicating their disappointment with the amount of the bonus. I might add that the reaction also was a disappointment to the family who owned the company since the bonus cost them more than $2,000,000. In this example, no one wins.
While it is a good thing that employers share the benefits of company growth and profits, when the “unengaged employee” profits at the same rate as the “fully engaged,” such bonus practices create morale issues because the best performing employees think equal participation is unfair. While I realize this may not be the case for all companies today, for the most part, end-of-year bonuses have become nothing more than entitlement pay rather than earned compensation commensurate with individual employee effort directly linked to an organization’s overall performance.
Performance bonuses properly constructed are not the problem, as they can be used effectively. But most are not. “Properly constructed” refers to the design and implementation of bonus plans that adhere to what the science of behavior (behavior analysis) has discovered about behavior and its consequences. People of all ages respect most what they earn. Unearned bonuses, to include a child’s weekly allowance, contribute to an entitlement mentality that executives frequently complain about. A system in which employees know the personal accomplishments they had to achieve to earn the money is far more efficient and effective.
There are many everyday examples in which actions or decisions intended to solve a problem have the opposite effect or have “unintended consequences” because they were designed or implemented without a solid, scientific understanding of human behavior.
Behavior, like gravity, is lawful and the laws apply wherever there are people, irrespective of industry, occupation or social circumstances. If applied correctly and consistently, the principles and methods of the science of human behavior will generate sustainable, positive results in any environment. Time spent learning those laws is time well spent because, no matter how things change in the business world, the laws of behavior will remain the same.
It’s time leaders understand the science of behavior so that they can effectively pinpoint the behaviors and results that are valuable to the organization and generously reinforce those behaviors and reward those who produce the results. Thomas Gilbert, author of “Human Competence,” said it well, “Any frivolous use of money weakens its power to promote human capital – the true wealth of nations…”
I understand that many employees, maybe even 100% of them, want or even count on getting an end-of-year bonus. I am not saying that these should not be given at all. What I am saying is that they should not be given without merit and in place of more frequent positive reinforcement and performance feedback throughout the year. Bonuses that are individualized, reflecting above-and-beyond contributions to the mission, vision and values of the enterprise, are a good investment. If money is a reflection of individual accomplishment, employees will work harder and smarter and enjoy being in the place where they do it. If it is done across the board or as a defensive measure – to avoid turnover – it is a waste of time and money that will eventually put the organization at risk.
Written by Aubrey C. Daniels, Founder and Chairman, Aubrey Daniels International