Why Most Bonus Schemes Don’t Work

As a business owner, you want to motivate your employees to perform at their best and achieve the company’s goals. One common way of doing this is by offering bonuses as an incentive. However, recent studies show that most bonus schemes don’t work and could cost you money.

Research has found that traditional bonus schemes, such as performance-based pay, can actually harm employee motivation, morale, and productivity. This is because bonuses are often viewed as an entitlement rather than a reward for exceptional performance. Employees may feel that they are being unfairly treated if they don’t receive a bonus, even if their performance is satisfactory.

Furthermore, bonus schemes can create a sense of competition among employees, which can lead to a toxic work environment. Employees may focus more on outperforming their peers rather than collaborating and working together towards a common goal.

So, what is the alternative to traditional bonus schemes? One solution is to offer non-monetary incentives, such as flexible work arrangements, paid time off, or professional development opportunities. These incentives can be more meaningful to employees and increase job satisfaction and loyalty to the company.

Another solution is to implement a profit-sharing or equity compensation plan. As we discussed in a previous article, offering equity to your key employees can be a powerful tool for motivating and retaining your top talent. Profit-sharing plans, on the other hand, allow employees to share in the company’s financial success without creating a sense of competition or entitlement.

In conclusion, relying solely on traditional bonus schemes to motivate your employees could waste money and create a toxic work environment. Consider offering non-monetary incentives or implementing a profit-sharing or equity compensation plan instead. Doing so can create a positive work environment that fosters collaboration, loyalty, and productivity.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.