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Bonus or Incentive?

The words "bonus" and "incentive" are frequently used as though they are interchangeable. In reality, they mean very different things. A "bonus" is a "thank you", an arbitrary, discretionary reward. The receiver doesn't know what s/he did to get it, or how to get it again. An "incentive" is a reward earned for completing specific tasks or meeting certain, pre-established objectives. An incentive requires knowledge in advance of what is to be done and how it will be rewarded. It is a myth that a "bonus" will motivate an employee. An employee can not be motivated when they aren't sure what performance will earn recognition. When the expected behavior has not been clearly identified, and employee can only do what they think is expected, and then hope for the best. Imagine their chagrin, and anger, if their efforts do not bring an award.
For an incentive program to be effective, there are several items that need to be in place. First the plan must be strongly tied to the objectives of the organization. If the business strategy or plans are not considered, then it would be very easy to pay for activities that do not actually help the organization be more successful. Secondly, the results being paid for must be within employee's sphere of control. There is no easier way to frustrate employees than to hold them accountable for things they can not achieve or control.

Another aspect of successful plans is that employees are not paid twice for their accomplishments. Employees earn a certain amount because of the job they have, and there are routine responsibilities of that job. Activities or accomplishments that are considered when computing a base pay increase should be clearly different than those things that earn an employee an incentive award. Many plans are poorly designed because they allow the employee to get paid twice for the same accomplishments or performance.

Another difficulty with incentive plants is that employers have not kept the base plant at the appropriate market level. If an employee feels that the base pay is too low, then they think they are being asked to contribute extra effort to earn what they should earn by just doing the regular work. For example, if the base pay is only 90% of what the market usually pays for that type of work, and the employee can earn an additional 10% of pay by accomplishing a specific set of objectives, the employee feels that they have been taken advantage of because they have to commit extra effort to earn what others are paid just for doing the job.

Incentive plan design is critical if the organization wants the plan to assist them with meeting organizational objectives, and provide a reward for employees who achieve excellent results. The plan must be carefully crafted so that it meets both organizational and employee needs.


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