· 2 min read · News

Employers urged to redesign bonus schemes


Employers should consider investing bonus pots in base salaries or initiatives that improve employees’ work enjoyment to drive performance, a management expert has suggested.

Speaking ahead of the annual bonus season, Institute of Leadership & Management (ILM) chief executive Charles Elvin said businesses should look at alternative ways to reward and motivate staff.

He warned that although bonuses were a “deeply engrained part of company culture” in many organisations, they did not always have the motivating effect employers expected. 

“Recent ILM research into what drives employee performance shows that receiving a bonus or other financial incentive has little or no impact on effort or commitment , with just 13% saying that this would motivate them to do more or try harder in their role,” Elvin said.

“That isn’t to say that money isn’t important, as a competitive base salary package was listed as the second most effective motivator for (49%) employees. However, our research shows that emotional factors are more important, with job enjoyment rated as the number one motivator by almost three out of five (59%) workers.

“Quality of relationships with team and colleagues was the third most popular choice (42%),” he continued.

“Better treatment from their employer, more praise and a greater sense of being valued were also identified as factors that would motivate employees to do more. This tallies with another recent ILM study which identified not feeling valued by their organisation as the second most popular reason why UK workers are seeking a new job this year.”

Elvin said employers would see a better return on their investment by “investing their bonus pots in other ways, for example increasing base salaries or looking at ways to improve employees’ enjoyment of their roles”.

De-institutionalising reward

However, Hay Group associate and author Helen Murlis argued that bonuses could be used motivationally if they did not become institutionalised.

In a report published by Hay Group in November 2013, she advised employers to “change and evolve” salaries and “tell your people about those changes to maintain their impact” to avoid staff taking bonuses for granted and treating them as a regular salary.

She also described how employees appreciated one-off payment and rememberd what they spent it on in a different way to regular salaries.

“There is a continuing debate about bonuses which often ignores the complexity of the subject,” Murlis told HR Magazine. “Talking about bankers bonuses is just not the same as talking about bonuses earned by people in other roles such as front line staff in production or call centres, or in sectors such as retailing or manufacturing.”

“Much depends on the kind of work that you do, the expectations you have in terms of rewards, how good the other rewards of your job such as development opportunities or flexible working and are how much you like your job and your boss – the kind of work culture and values that prevail in your organisation.”

According to the Office of National Statistics, UK organisations collectively spent £36.9 billion on staff bonuses in 2013.