Holiday Bonus – entitlement or pay for performance

by Suzanne Joachim Fri, Dec 5, 2014

I am sure that there would be a growing under swell of discontent, if as an HR professional, I recommended that businesses link employee bonuses to performance (individual and organisation), or eliminate them altogether but with a line of sight toward a fully developed compensation plan – underpinned by a well thought out compensation philosophy. Granted, this would require that businesses themselves have clearly defined strategic goals and targets with requisite systems and structures to capture same.{{more}}

While I recognize that holiday bonus (something of value), can be a powerful tool to motivate and engage a workforce, it can also be problematic, if it is not tied to measurable results instead of subjective opinions. The reason being, employees may not be encouraged to strive for higher levels of performance and development. Moreover, recipients treat the bonus as an entitlement and the additional gift/income (apart from base compensation) becomes a right.

The issue becomes even more complex when the “Millennial Factor” is added to the employment mix. This newest employee cohort is a growing proportion of the workforce with drastically different outlook from “Boomers”. They need to be managed and motivated differently than other generations. Research conducted by PWC has underscored that generous cash bonus, though important, may not convey the appropriate message or be as motivating as employers had hoped. Instead, the focus should be on creating positive work experiences, provide value recognition and real time performance feedback, since this cohort strives on being challenged and stretched. Evidently, therefore, organizational culture must be improved through positive psychology.

Interesting milestones in the history of the bonus and its evolution from gift to entitlement, as recounted by sociologists, provides background and context to this phenomenon. Sociologists have stated that at the turn of the 20th century, employers began substituting the traditional 19th century Christmas offering to employees (turkeys, watches, candies etc.) with a cash bonus. However, the custom of “remembering the workers” was treated by most employers as a discretionary gift. And, while some companies offered a bonus to every employee, other employers’ made the Christmas present contingent on efficiency record or employee’s disposition of the bonus, according to the Huffington Post. During the 1950s due to the fact that the bestowal of bonus was standardized and expected, Christmas bonus officially lost its status as gift. Today, the “benefactor-beneficiary component of the employer-employee relationship seems to be vanishing and is not so traditional anymore.”

The aforementioned conclusion was derived from a survey (452 national companies) conducted by Hewitt Associates of Lincolnshire- where 64 percent of companies today do not offer any type of holiday bonus. Of these organisations, 80 per cent cancelled their programmes between 1990 and 2000, citing that they now tie ALL employee rewards to company and individual performance.

Ideally, bonuses should be geared toward encouraging certain types of behaviour by rewarding it. Hence a blanket policy or a free floating bonus programme that is not linked to positive performance will create serious problems for businesses; reinforcing undesirable behaviours.

The following example underscores the point – a Customer Service Representative continually fails to meet “Top Drawer” customer service and is regularly reprimanded for poor customer service, as delineated by the company. However, each year receives a holiday bonus, invariably at the same rate as an excellent performer. It can be concluded therefore, that apart from sending mixed signals and creating potential legal implications, the company is not rewarding for increased customer satisfaction – the bedrock upon which competitive advantage is built.

The wrong kind of bonus can backfire and encourage employee resentment and hostility toward management. The questions that each employer has to ask: Should the company continue to routinely pass out substantial cash bonuses unrelated to performance? How does the company create a bonus programme that generates business, achieves strategic goals and encourages employee development? How does the company dismount the bonus horse (as it currently exists) once the ride has begun?