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Companies relying too heavily on annual bonuses

During the fourth quarter, many organizations begin their final push to meet yearly sales objectives. Employees are asked to put in the extra effort needed to deliver results and, if they are successful, are rewarded with an annual bonus.

During the fourth quarter, many organizations begin their final push to meet yearly sales objectives. Employees are asked to put in the extra effort needed to deliver results and, if they are successful, are rewarded with an annual bonus.

The number of companies using bonuses as a management tool is increasing, Employee Benefits reported. Citing a study by Tower Watson, the source noted that 94 percent of companies will utilize year-end rewards to motivate workers this year, up from 90 percent in 2012.

"We have seen a steady expansion in the proportion of organizations offering annual incentives compared to equivalent studies conducted in 1999, 2004 and 2009," Joris Wonders, director of the UK reward practice at Towers Watson, told the source. "Not only is the proportion of organizations offering bonuses on the rise, but the breadth and depth of eligible workers also continues to increase."

For most organizations, these annual rewards are offered as cash, usually a percentage of the recipient's salary. Wonders noted that the concept of pay for performance remains very strong within most organizations. The strategy can motivate workers by providing greater financial stability. However, a separate article by Employee Benefits stated that most workers are not inspired by a small boost in pay. Research by the Institute of Leadership and Management found that only 49 percent of people listed income as a top motivator. Staff members are just as likely to list enjoyment in their job (59 percent) and relationships with colleagues (42 percent) as leading incentives.

Reworking reward programs to get better results
These results could prompt businesses to take another look at the effectiveness of their employee incentive programs. Making some adjustments to these programs could boost engagement. A problem with annual bonuses is that they are only offered once a year. The goals and objectives for these programs are often pushed aside for most of the year as employees focus on other daily tasks. Only once the deadline for the program approaches do managers and team leaders make a push to achieve their objectives.

Rather than seeing the benefits of these initiatives all year long, companies get a big short-term push. Implementing employee reward and recognition programs throughout the year can help eliminate this spike in activity to deliver more sustainable production levels. Another problem with cash rewards is that staff members begin to perceive them as an entitlement. One way organizations can avoid this is to offer more personalized rewards. Rather than relying on cash, which is quickly forgotten about, letting employees choose among a range of useful products could increase employee satisfaction.

Using this tactic, managers are still able to create incentives for hard work by recognizing individual commitment. Those who have shown strong improvement or have made extra efforts to deliver results can be rewarded for their efforts. These ongoing initiatives continually reinforce company values to develop a strong corporate culture driven to exceed long-term goals. 

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