February 21, 2024
March 1, 2024

Rethinking Employee Bonuses

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Employee bonuses have been around for a long time. Longer than really any of us can remember. Bonuses such as turkeys and gold watches were given to employees all the way back in the 1800s, and cash bonuses came into existence in 1899. If you can believe it, J.P. Morgan & Co. gave each employee a full-year’s worth of salary(!) as a Christmas bonus in 1902, creating the culture of large cash bonuses around the holidays.

The idea behind holiday bonuses (and really any type of bonus) is sound: you reward employees with a little extra money to show appreciation for their work. The employee is happy. The company feels good about itself. Everyone wins, right?

Well, not so much.

Bonuses have become an expected crutch that we rely on too much to compensate and appreciate our employees. At best, they’re mild motivators reserved for the organizational elite (which breeds a whole host of issues); at worst, they’re demotivating punishments for employees who feel like they can’t stack up, no matter how hard they work.

Why not make bonuses more egalitarian, more equitable, and much more effective at motivating and rewarding your teams? Awardco is positioned to bring the current compensation and benefits structure (i.e. bonuses) into the current era using technology and data.

Why Do We Need to Rethink Bonuses?

Bonuses have been an accepted part of our business culture for decades, but it’s time to rethink them. In fact, bonuses have some pervasive downsides that can hurt employee motivation and morale instead of help it:

  • Temporary compliance. When bonuses are tied to any sort of incentive program, or when they’re seen as a reward for a certain behavior, the only change you should expect in your employees is a temporary one. These extrinsic motivators don’t do anything to create commitment or care for the work.
  • Unrealistic expectations. When you have a great year, you want to reward your workforce, right? That normally means larger bonuses during the holiday season. But even after a less-productive year, employees will still expect that substantial bonus. If you don’t or can’t give it to them, you may see a lot of unsatisfied workers. Some employees may even look for positions at different companies with more consistent rewards.
  • Unhealthy competition. This downside is a big one. Collaboration is a vital part of success, but if more work equals more bonus money, that fosters a competitive mindset instead of a cooperative one. A little competition isn’t a bad thing, but when bonuses are the perceived reward, that may contribute to an unhealthy culture.
  • Perceived unfairness. How do you keep bonuses fair while satisfying every employee? What if one employee works hard every day but doesn’t do work that’s easily noticed or traced back to them? Do you still give them a large bonus, thereby making others upset, or do you save large bonuses for managers, salespeople, and other more visible employees? Balancing your budget with fairness and generosity creates more problems than bonuses solve.

So bonuses aren’t the best option, but you still want to reward your employees for their hard work. Which we think is great and totally support! Employees deserve to be recognized and rewarded for both their achievements and the simple fact that they show up and work for 40 hours every week. So what can you do about it?

What Bonus Alternatives Exist for Employees?

Creating an alternative bonus strategy may seem complicated or difficult (not gonna lie, it takes some creativity!), but you have options.

One idea is adding a small chunk of change on top of each employee’s bi-weekly paycheck. For example, adding a small amount of points on the Awardco platform for each employee, regardless of their position. These points can’t be used for bills, groceries, or other boring expenses. Instead, it’s a way to reward each employee with some money that they can spend on fun things that they actually want. That way, employees get a small “bonus” every two weeks!

You can do all sorts of things as bonuses for your employees, however, and most of these ideas don’t have anything to do with cash or paychecks. A few examples of these include:

  • Paying a cleaning service to clean each of your employees’ houses every week (or month)
  • Offering a company retreat in an exotic location to give everyone a free vacation
  • Gift personalized, quality items to each employee (throughout the year, not only during the holidays)
  • Include employees’ families in these events or gifts, if possible.
  • Provide each employee with a variable amount of PTO (and encourage them to use it!).

These types of bonuses are so much more than money. They show that you’re investing in your employees and thinking about them outside of work. You prove that you aren’t thinking of your workers like numbers on a spreadsheet; instead, you treat your employees like people with lives, hobbies, and interests outside of work, and you support them in their endeavors.

Bonus Budget: How Much Should You Spend?

No matter what type of bonus you offer now or you want to offer in the future, your budget will always be a concern. So how much should you pay each of your employees in bonuses (whether it’s through house cleaning, vacations, or cash)?

According to bonus statistics for 2021, the average bonus pay in the United States for exempt employees is 11% of their salary. For nonexempt employees, it drops to 6.8% and for hourly employees, the average is 5.6%.

It’s up to you whether you want to keep that split or if you want to balance the percentage out for all different types of employees somewhere around 8%. But just think about that: if you have an exempt employee making $50,000 a year, 11% would be $5,500 over the year—or, if you shoot for the balanced approach, 8% of $50,000 is still $4,000. Either way, that’s a lot of bonus money!

With that amount of money, you can still offer a flat annual bonus (for example, everyone gets 2% of their annual pay at Christmas) because most employees expect something like that. But you should focus on creative bonuses with the rest of your budget, something like bonus pay on top of each paycheck or a yearly vacation opportunity. These types of bonuses create a fun, rewarding culture without the drawbacks of uneven or unfair cash bonuses.

Reimagine Your Bonuses With Our Help

Stepping away from the traditional cash bonus can be hard—they’re so ingrained in the way we do things! However, with some creativity and dedication, you can create an employee bonus plan that rewards everyone, avoids negative competition, and builds a culture of gratitude, loyalty, and recognition.

But what about employees who really deserve extra? Those employees who go the extra mile should be rewarded for their efforts, right? Totally! Awardco can help you create reward and recognition programs that recognize exemplary effort without any of the jealousy or bitterness that may come with traditional bonuses.

Awardco is all about rewarding and recognizing employees, and we want to help you make the best bonus program possible. Get a demo and see what we can do for you!

Jefferson Hansen
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An avid lover of fantasy books, a proud Hufflepuff, and a strong proponent of escapism, Jeff has a love of good storytelling. He relies on that for both his professional work and his writing hobby (don’t ask about the 10+ novel ideas collecting virtual dust on his computer).