Researchers at Rotterdam School of Management, Erasmus University, examined how employees respond to managers using discretion to decide how much bonus to award them.
The study focused on actual bonuses given to office workers at a UK government-funded organisation that employed 733 staff at the time of the survey; 155 staff were asked to report their motivation levels shortly after receiving their bonus.
The research found that employees who received a high bonus perceived to be based on their manager’s discretionary judgement thought the bonus was fairer, and this increased their intrinsic motivation. However, when they received less money because of manager discretion it was seen as less fair and employees began to feel a mismatch between themselves and the organisation.
Hannes Leroy, assistant professor in the department of organisation and personnel management at Rotterdam School of Management, Erasmus University, said that several organisations have implemented this approach, and found increased engagement and motivation among staff. “Several Fortune 500 companies have already reported making a shift towards managers using their discretion when allocating staff bonuses in recent years,” he said.
“This is because organisations are increasingly interested in creating work environments to encourage passion, purpose and engagement. These factors are about engendering intrinsic motivation – doing a job because it aligns with who you are and your core interests and values, rather than pursuing work-related tasks for extrinsic reasons.”
Speaking to HR magazine, assistant professor in the department of organisation and personnel management Rebecca Hewett said that the formal bonus system can sometimes feel impersonal: "The results were surprising in a way. The accepted wisdom is that performance should be something that is managed objectively. But if we think about the nature of modern work it can sometimes be very difficult to think about the value you add to an organisation. When managers use their discretion to give bonuses it can help an employee feel that their individual efforts have been appreciated."
Hewett added that bonuses are not always the best motivator for performance, however. "They can be high risk; it can go well or people will lose out. It really depends on what is right for your organisation, what you want to achieve, and the nature of what you want to achieve. For some teams a more holistic creative approach towards recognising achievements might be more beneficial," she said.
"But it's important to recognise that performance-related bonuses are not going anywhere. One of the worst things you can do is take away bonuses if people have been relying on them, which can be hugely damaging to employees' trust."