The Bonus Round

As yet another calendar year races toward its inexorable end, many C-suite executives will soon be confronted with the recurring conundrum of how best to divide up the budget allotted for rewarding employees with year-end bonuses. But before you start slicing up that bonus pie, maybe it’s time to consider whether cash bonuses are the best way to reward your employees for all of the hard work they have done throughout the year.

There’s no arguing that cash bonuses aren’t here to stay, but there are a number of reasons why CEOs may want to revisit how—and how often—they reward employees. For starters, while most employees do look forward to receiving an annual bonus, that single payment comes after a full year of work, meaning that there can be a significant disconnect between the reward and when the hard work occurred. Even when the employee’s performance has been consistently exemplary, the correlation between the behavior that generated the reward and the timing of the one-off reward itself may not resonate the way you hope. In fact, 51 percent of workers say that increasing the frequency of rewards is the best way their company could improve its incentive plans, according to a recent survey by Staples Advantage.

What’s more, there’s a massive cultural change afoot in the workplace. Baby Boomers are rapidly reaching retirement age, leaving millennials poised to dominate the work force. One issue this transition brings to light is that while older workers still think of rewards on an annual basis, their iGeneration counterparts largely believe that rewards and recognition are de rigueur and should be bestowed on them in the moment, in context and with sincerity. This different view demands that leaders consider new approaches to incentive programs.

Lynn-CarterBonus policies are evolving around a new workforce’s perspective
“Money doesn’t matter as much as it did two generations ago,” says Lynn Carter, who recently retired as president of Capital One Bank, a division of Capital One Financial Corporation. “It should be interesting to watch as industries evolve around this change and align what they do to speak to this new generation.”

Younger workers tend to be more lifestyle-oriented than previous generations, more concerned with work-life balance than sheer income potential. Companies will increasingly face the challenge of responding to that new perspective, predicts Carter, who also notes that employers in today’s economy may not have the resources to delight employees through financial rewards. “[Companies] have to be sensitive and ask them what they want, because this generation’s workforce probably won’t have the kinds of opportunities that my generation had in terms of earning potential,” she says. “Instead of just handing someone a pile of money at the end of the year, that may mean giving them entrepreneurial capability, or enabling them to be more creative in the workplace. To some people, a bonus may mean less structure than older generations wanted or enjoyed. Companies will have to respond in new ways.”

Non-cash incentives—ranging from career-enhancing carrots and social recognition of performance achievements to deeply personalized and distinctive rewards of significant value—may actually send a more powerful message of appreciation to your employees, and can help generate an equally genuine response in return. But how you decide to say thanks should be unique to your company and its strategy, says Patrick Quirk, CEO of Achievers, a leading employee success platform and SaaS provider based in San Francisco. “Each of our clients’ approaches is different, as they should be.”

“Companies like Deloitte spend a good amount on reward programs that give their employees opportunities to use Expedia to take big trips,” says Quirk. “CVS, on the other hand, which is focused on pharmacies and retail shops, isn’t going to necessarily spend as much as a consulting firm, but they reward their employees with Apple products, such as iTunes cards, iPads and iPhones.”

In some cases, companies offer star employees paid time outside of the office spent to give back to their communities by pursuing philanthropic work. “For some of our clients, we tie their social recognition rewards toward corporate responsibility opportunities,” explains Quirk. “And in other cases we have concierge services for personalized goals that employees either choose for themselves or have chosen for them by someone who knows them well.” For instance, someone may want to apply their reward toward giving someone else a puppy, or sending their grandparents on an Alaskan cruise, he says.

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