To Bonus or Not To Bonus
How to incentivize employees
Do bonus programs work? The answer depends on what we mean by “work.” Research suggests that rewards succeed at securing one thing only: temporary compliance. There is no firm basis for the assumption that paying people more will encourage them to do better work or even, in the long run, do more work. Unfortunately, managers often use incentive systems as a substitute for giving workers what they need to do a good job. Treating workers well—by providing useful feedback, social support, and room for self-determination—is the essence of good management. On the other hand, dangling a bonus in front of employees and waiting for the results requires much less effort and can be less effective.
Now that you know bonus programs may not be a good long-term strategy, if you still want a bonus program, keep reading for how to make that as effective as possible.
The bonus plan typically applied in a laboratory setting is a performance bonus, for which the company sets targets that employees must achieve or surpass. This type of performance bonus plan is designed to continuously give employees an incentive to perform better than average in their jobs or assigned tasks and responsibilities. It is usually given on a regular or ongoing basis, such as annually or semi-annually. Most of the time this type of bonus is given to keep a company’s top talent satisfied.
The first action to take is conduct employee reviews twice yearly. Discussions with many laboratory owners indicate that management does not conduct reviews of employee performance on a regular basis. Personal growth goals, number of skills attained, and performance to operating measures are all required to properly evaluate employee performance.
Employee performance reviews serve multiple purposes. They provide reinforcement for good performance, provide a roadmap for improving performance, and build a foundation of reasons for termination if a forced separation is required. Of critical importance is the assessment of the worker’s contributions (good or bad) so that all parties have a clear picture of what is going on. As the business continues to grow, performance reviews will play an important role in business planning, hiring/firing decisions, and productivity needs. Be sure to incorporate “peer” feedback to get other opinions of the employee, making sure to give these workers time to provide their comments.
Once the employee reviews are complete, you can work on bonus program design. There are four important pieces to ensure a sustainable program. It must be based on:
• Company profitability—If the laboratory doesn’t make a profit, it cannot pay bonuses; and it has to make a profit that will allow extra operating cash to be kept available.
• Employee skills development—A good bonus rewards for skills, both technical and supportive (team building, problem solving, etc).
• Adherence to budget/cost reduction—All employees should be skilled in how to identify waste in any given process, and then apply the appropriate tool to reduce or eliminate the waste.
• Put the employee bonus plan in writing—The details must be documented and communicated to all the employees. This will avoid any misunderstandings about the company’s policies about giving bonuses and incentives to employees.
The example shown is for a typical experienced laboratory employee who is incentivized to apply their knowledge to improve performance of the organization as well as their own personal skills. Obviously, the percentage of the bonus can be subject to increase or decrease based on the individual or the future business outlook. (For instance, the percentage of bonus earned by an employee based on achieving 75% to 85% of their assigned personal goals will be lower than the bonus percentage for an employee who achieves 86% to 100% of assigned personal goals.) The reader should be aware that not all employees will maximize the payout, as the motivation to improve may not be a priority for them. Bonus programs can be risky and require work on everyone’s part, both the owner and employees themselves.
Important things to consider before setting up a performance bonus program include:
• The plan requires budgeting and monitoring throughout the year.
• If objectives are not properly set or assessed, the organization may not get value for its money.
• Not all employees care about incentives; they are not motivated by them.
Rewarding employees for performance can be supported by the use of a properly designed and applied bonus program. A good bonus program focuses employees clearly on adding value by paying for skills and personal development, but also links any rewards to the overall performance of the laboratory. And remember: More than any bonus, providing useful feedback, social support, and room for self-determination are key to good management and solid employee performance.
About the Author
Bob Yenkner is the owner of Practical Process Improvements located in East Hampton, Connecticut.