Should You Offer an Annual Bonus to Motivate Employees — Or Something Else

Employee motivation should be simple enough – just throw extra money at them, right? Nothing says “we value your work” like a lump sum of cash at the end of the year. Except maybe actually saying those words, but who has time for interpersonal employee recognition?

If we sound just a tiny bit tongue-in-cheek, it’s because the idea of financial incentives as an employee motivation strategy is a staple of the business world, and yet, it doesn’t actually have as much to do with true employee motivation as you may think.

In this article, we’ll discuss some reasons why annual bonuses aren’t always the right choice when you want to reward your employees.

Bonuses aren’t as motivational as we think.

While financial incentives are often used to encourage and motivate employees, the role of bonuses in improving productivity in the workplace has been heavily debated.

Research from numerous studies indicate that employee motivation gained from financial incentives is either temporary, non-existent, or actually hinders productivity as employees focus on short-term gains and put off any and all work that’s not directly related to immediate rewards.

Let’s take a look at these findings individually.

Many employees aren’t motivated by bonuses at all.

A good number of employees are not motivated by monetary incentives at all. If your employees are already earning a decent income and bonuses haven’t served any real purpose in motivating them in the past, consider giving them a pay raise or other work perks instead.

Studies also show that employees crave recognition, praise, and positive feedback, not money. Financial incentives make employees feel like cogs in a machine that produces a mandatory output, but it’s the appreciation of their personal accomplishments that gives them the most satisfaction.

Verbal praise and physical awards are much more valued by employees, like the employee awards you can see by heading over to Awards’ website.

Motivation from financial incentives is only temporary.

A great many studies published over the decades by reputable researchers indicate that financial incentives are extremely short-term in their effectiveness, and only motivate the employee until the bonus is obtained.

When money is dangled in front of an employee, that employee’s immediate focus is the reward. For employees who are already motivated, the added incentive is not worth the potential drop in productivity.

Furthermore, employees will only put in enough effort to gain the financial reward – no more, no less. After that, their performance level will drop to whatever it was before the incentive was offered.

Financial incentives make bosses seem miserly.

How can a boss come across as miserly by offering financial incentives? It boils down to whether your employees depend on bonuses for their financial comfort and quality of life.

It’s like a quote from the gangster film A Bronx Tale, where mafia boss Sonny says about his crew: “I give them just enough for them to need me, but they don’t hate me.

If that sounds like your approach to managing your team, your employees likely view you as a harsh taskmaster who won’t hesitate to reduce their annual bonus if they don’t meet expectations.

If that’s the case, your employees likely already feel underpaid and undervalued – and by offering financial incentives, you’re essentially saying you feel your employees need to prove their extra worth.

Of course, even if your employees don’t rely on bonus pay to make ends meet, you should be wary of the risk of alienating them if your financial incentives are extremely generous and can’t be achieved through appropriate wages and salaries.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.