Say Goodbye to the Annual Bonus

July 21, 2017 Sarah Payne

 

Everyone in the world of HR is talking about the end of annual performance reviews. The chatter is focused on how to promote a coaching culture throughout the year to continuously improve employee performance.

Few people, however, are offering a real solution to the compensation piece of the annual review. Traditionally, employees had their review with their manager and received a rating based on their performance over the past year. And then at some point around the same time, they would receive a lump-sum annual bonus in their paycheck based on individual and company performance.

How can we modernize the way we reward our people to match the new culture of continuous recognition and feedback?

The video below features a snippet of Globoforce CEO Eric Mosley’s keynote from WorkHuman 2017. He shows the inherent flaws of the one-time, annual bonus and introduces the idea of crowdsourced rewards as a way to lift employee engagement and happiness throughout the year – using the same investment.

 

The good news is more companies are catching onto this idea. A 2016 Willis Towers Watson survey projected that annual performance bonuses would hold steady or decline slightly in 2017, while discretionary bonuses were projected to increase slightly.

Tim Low, senior vice president of marketing at PayScale, echoes this idea in a piece for Harvard Business Review, where he argues the merits of pay-for-performance practices. He writes:

At one end of the spectrum is the tired, uninspired (but common) 3% cost of living adjustment that many organizations dole out across the board. Companies that do this are telling their high performers that their efforts weren’t recognized and telling their low performers it’s OK to continue delivering mediocre results. At the other end of the spectrum are companies like Hilcorp which gave every employee a $100,000 bonus … The common problem with each of these compensation strategies approaches is they don’t recognize individual contribution to the business.

It’s not about taking away the annual bonus altogether, but re-thinking how your Total Reward budget is allocated. Are you getting a return on investment from the annual bonus? How could you more effectively use recognition and rewards to make a real impact on your culture?

Where is your company on this journey? Share your thoughts with us in the comments.


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