September 28, 2018

Does your organization provide all employees with a discretionary bonus each year? Perhaps your organization creates a pool of money annually and divides it up amongst the employees. While implementing a discretionary bonus program in which everybody benefits financially sounds wonderful, it is important to note there are problems inherent in a discretionary program that can both expose you to legal risk and create negative employee morale and a misaligned culture.

When an organization gives all employees a bonus without being able to justify why these employees receive the bonus it creates a tremendous amount of perception by the employees that may or may not be aligned with the intentions of management.

For example, management may want to provide every employee with a 5 percent bonus based on the overall performance of the company. This certainly would demonstrate a positive intent by the employer to recognize and reward the employees. Unfortunately, when this is the approach by the employer there is little to no consideration being given to the fact that some employees are performing their job effectively or exceeding performance expectations, while other employees may be failing to meet expectations or performing poorly both in the view of their peers and their supervisors.

In the case where employees across the organization all receive a bonus, those employees who feel they provide greater value and contributions to the business will feel resentment and job dissatisfaction because they will believe their bonus is it adequate or unfair compared to those employees not performing as effectively as they are.

This approach to additional compensation may be counterproductive to the intent of the bonus itself. Again, an employer is seeking to reward the workforce for the overall success of the business. However, and the reality is, not every employee contributes at the same level, and you may have members of the workforce on corrective action, performance improvement plans, too new to have contributed, or those that are exceptional performers that should be recognized for their contributions.

A more effective and fair approach would be the establishment of goals, expectations, performance management, and accountability to ensure every employee is held accountable to earn their portion of the bonus established by the business. Do not send employees the wrong message by awarding everyone the same bonus knowing true well that they are not all performing their roles effectively or failing to meet expectations. While it may make you feel good as the leadership team, the employees are not happy with this approach.

Further, you create an environment where employees no longer work hard to earn any discretionary bonus, and instead become entitled and think the employer must provide them a bonus each year. This is a bad situation to put yourself in because when you attempt to right the ship and migrate back to an appropriate program in which only good performers are eligible for a bonus, there is a backlash from the workforce creating poor morale and an increase in employee relations issues.

Tie employee bonus eligibility to clear goals and expectations. Have common eligibility levels for each position in the organization. For example, managers eligible for X percent, line staff eligible for X percent, supervisors eligible for X percent, directors eligible for X percent and so on and so forth. Two people in the same role should not be working towards different bonus opportunities since the roles are expected to produce the same outcomes. Definition of percentages should be aligned as well, a percentage of base salary, a percentage of revenue growth, percentage of retained business, etc.

I do not recommend a culture of a bonus for everyone, it simply isn’t fair and doesn’t recognize the differences in the contributions of the workforce and establishes an entitled workforce. Remember, you are already paying your employees to do their job, don’t give them a bonus just because they did the job you already paid them for.  Instead, reward those exceptional performers who can be identified as driving the success of your business and you will motivate the rest of the workforce to contribute at a higher level to earn the bonuses available to them.

About Warren Cook

Warren is the President and co-founder of SymbianceHR and provides strategic oversight for service delivery, business operations, and technical guidance on consulting engagements. He is a human resources subject matter expert with over 25 years of experience as a strategic human resources business partner, project manager, and people leader across private and public sectors organizations. Warren is responsible for the strategic planning of all client consulting engagements from initial needs assessment and compliance review through delivery of customized strategic solutions that meet the client’s business goals. He has a proven track record of providing executive coaching and guidance to business leaders and human resource professionals at all levels including the C-Suite of Fortune 100 companies. Warren is also the Chief Talent Officer and cofounder of SymbianceHiRe, a Symbiance company dedicated to providing direct placement talent acquisition services and temporary and contract staffing solutions to the business community. Warren holds a B.S. in Human Resource Management, an MBA in Project Management, and a M.S. in Industrial and Organizational Psychology. Warren is the author of “Applicant Interview Preparation – Practical Coaching for Today.”

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