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Bonus systems can be an effective management tool

One of the hottest topics among the clients of our recruitment practice is the issue of bonuses. "What should we offer our present staff?" clients ask. "Can I believe what job candidates tell me about bonus systems at other companies? What kind of bonus system should we use? What is the competition doing?"
An effective bonus system can generate many positive results, including increased motivation and loyalty on the part of employees. Bonuses are also an effective tool for managers to guide their people towards the desired behavior; how much is paid out and how often generally depends on the company's results, individual employee performances, team performance and personal development.

One of the hottest topics among the clients of our recruitment practice is the issue of bonuses. "What should we offer our present staff?" clients ask. "Can I believe what job candidates tell me about bonus systems at other companies? What kind of bonus system should we use? What is the competition doing?"

An effective bonus system can generate many positive results, including increased motivation and loyalty on the part of employees. Bonuses are also an effective tool for managers to guide their people towards the desired behavior; how much is paid out and how often generally depends on the company's results, individual employee performances, team performance and personal development.

Given that bonus schemes are more or less regarded as normal things, not having a bonus system can actually have a negative impact on the employees of a company. Moreover, many bonus systems work poorly, with money promised by management but never actually ending up in employees' pockets. A poorly-functioning bonus system can be just as de-motivating as none at all, so if you have a bonus system, you must be prepared to pay to make it an effective tool.

The most frequently-used bonus system in Slovakia for operative staff and lower management is the traditional extra month (so-called '13th' or '14th month') in gross salary. Whether the employee gets this bonus is based mostly on company results and not on individual or team results; at many troubled firms, bonuses are not paid because of lack of money. Where bonuses are paid, they often do not come until the end of the year or the beginning of the next year.

For middle and top management, in traditional companies and institutions we see high bonuses - up to 200% of the salary - offered by the employer but seldom received by the employee. Here, too, bonuses tend to be paid at the end of the year or the beginning of the next year. The higher we go in the hierarchy of traditional companies, however, the more bonuses tend to be paid bi-annually, quarterly or even monthly. Even at troubled companies, bonuses are nearly always paid at the top levels of the organizations.

The more often you pay a performance-related bonus to your employees, the more effective it becomes as a management tool. But before you consider implementing a monthly bonus system, you must set objective criteria to evaluate employee performances, and make sure your managers have the time to evaluate their subordinates each month. Many monthly bonus systems end up with everybody receiving the bonus automatically as management has no time for proper evaluation.

Paying a bonus once a year does not motivate your people until one or two months before payment day. Quarterly bonuses, thus, can be a nice alternative. Four evaluations a year is feasible for every manager, while the employee still feels it as a direct reward for his or her performance in the past period.

Gerard Koolen is Managing Partner of Lugera & Makler, The Matchmaker. If you have questions or remarks, please send your e-mail to: gkoolen@lugera.sk.

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