Recognize This! – Annual cash bonuses fail for two key reasons.

I’m sure the title of this post is no less shocking to you thank it is to me. This is the finding of Mercer’s latest “Smart Benefit Choices” survey, summarised well by John Hollon in TLNT. (For those strapped for time, I recommend John’s summary of the global findings over the full research as he teases out the key points in a more digestible way.)

But it’s not the details of the research I want to focus on today. No, the overall finding is much more interesting to me at this time of year when leadership is planning annual bonuses.

The annual bonus is a well-intentioned benefit, usually cash based, given at the end of the year to mark achievements throughout the year, and closely linked to a major gift-giving holiday. Yet the annual bonus fails to accomplish the primary intent of leadership for 2 reasons:

1)      It’s delayed.

Why do employees want immediate gratification? Because they want to know that what they do has greater value, meaning and purpose. Waiting to reward employees for excellent effort or achievement at the end of year means you as leadership have missed out on the opportunity to recognise and reward employees in the moment. Why does that matter? Simply put, you’ve missed the opportunity to reinforce those desired behaviours and encourage the employee to repeat them again and again.

2)      It’s usually cash-based, and therefore rapidly becomes an entitlement.

When the annual cash bonus becomes, well, just that, then employees expect their annual cash bonus. This is, of course, not at all the intent of the annual award, and yet annual cash bonus programmes nearly always turn into entitlement expectations as employees have come to perceive (and rely on) the annual bonus as part of their salary. I’ve heard and read more stories than I care to count of parents telling children, “Christmas will be smaller this year because Mommy or Daddy’s bonus wasn’t what they expected.”

In the case of employee recognition and reward, instant gratification plays an important two-fold role:

  1. It’s always a surprise, never an expectation.
  2. It reinforces in the moment what matters to you the most so the employee is encouraged to do it again and again.

Do you have an annual cash bonus programme? Are you getting from it everything you expected and need?