Are bonuses the key to incentivising staff?

Many employers, particularly in sales and production industries, consider bonuses a key component for incentivising and motivating staff performance.

The carrot of a bonus is perceived to lead to increased productivity and result in profit improvements. Bonuses are also seen to encourage staff engagement in and ownership of their work, enabling them to see that their hard work will reap direct and tangible financial rewards for them.

One sector that has received significant attention for its bonus culture over recent years is the City, with investment bankers and fund managers demonised for their aggressive drive to earn large pay outs.

We were therefore interested to read that one investment management company, Oxford-based Woodford Investment Management, has decided to introduce a flat salary for all staff, and remove bonuses, labelling them “largely ineffective”. They found that “there is little correlation between bonus and performance” and concluded that bonuses “don’t work as a motivator”, and can “lead to short-term decision making and wrong behaviours.” They determined that bonuses and competition between colleagues were a distraction.

Naturally, steps needed to be taken to soften the impact of removing bonuses: otherwise staff could argue they were being hit by an effective pay cut. Accordingly, staff were awarded a pay rise for the current financial year.

This story shows that how an organisation wishes to promote employee engagement has a key role to play in devising a pay and reward strategy. There is not a one size fits all approach as to what motivates individuals – personality tests can show the variance amongst colleagues working in the same team, let alone across a business.

For assistance with devising your pay and reward strategy, including legally compliant steps to introduce a new pay structure and how to assess what motivates your staff, please contact Eagle HR on 0808 168 5780.