Cash bonuses: how can HR ensure they’re effective?

Is cash king in your business? It’s no secret that using cash bonuses or monetary-based incentives remain a popular method of motivating a workforce.

In fact, despite the tough financial climate, they still seem to be the go-to method for inspiring better workplace performances, with CNBC reporting in December 2021 that nearly twice as many employers were offering year-end bonuses than in the previous year.

When it comes to businesses that deal in the sale of high-value items or have employees on target-based objectives, a cash bonus is considered a traditional and popular form of incentivisation. And of course, with a much-publicised cost-of-living crisis continuing to bite, who would turn down the prospect of some extra cash in their bank account?

On the other side of the coin (no pun intended), cash-related bonuses can be completely ineffective if employees constantly encounter difficulties reaching their personal or business-related targets.

A business may think it has an enticing bonus scheme, but if a workforce has more chance of winning the lottery than reaching their bonus target, they may decide to ‘quietly quit’ and only do what is contractually obligated of them. Worse still, they may leave for a business where they have a much better chance of receiving regular bonuses.

It’s also the case that cash-related bonuses or incentives can be considered something of a demotivator over a prolonged period. This is especially true if employees have become accustomed to receiving money for going the extra mile. In the absolute worst cases, they can also create a negative or even toxic culture if a workforce is purely driven by the need to achieve their bonus targets.

So, a tough topic for many businesses, but an important one nonetheless. If your business relies on cash bonus schemes or money-based incentives to motivate employees, how can HR teams ensure they’re managed effectively and are inspiring a workforce to exceed their expectations?

Here are our top tips:

Engage directly with your own employees

If your business has a monetary-based bonus scheme in place (be it an end-of-year cash bonus or target-based incentives), ask yourself: is it really helping to motivate your workforce?

This is where engaging directly with your employees can help. To start finding out if your bonus schemes are fit for purpose, consider initiating a short pulse survey to discover your workforce’s feelings on the subject. You could ask questions such as:

• I believe our company bonus scheme is fair to all (yes/no)
• The company bonus / incentive scheme motivates me (yes/no)
• I understand what objectives I need to meet to be eligible for a bonus (yes/no)
• I believe my yearly objectives / targets are achievable (yes/no)
• I believe cash bonuses are the best type of reward (yes/no)

These types of simple questions can help you to start identifying potential issues with your bonus schemes that could be hindering engagement. With the answers you collect, you can begin the process of either refining your current bonus strategies or drawing up plans for something else entirely – such as a recognition-based system.

Evaluate your workforce data

Your workforce data could also provide vital clues as to whether your bonus schemes are working in the way you’d want. For instance, does your HR data indicate a pattern of staff leaving the business once any bonus schemes are paid out?

Employees who have disengaged from their roles or have considered moving jobs are more likely to wait to hand in their notice until they’ve received their annual or end-of-year bonus. If this proves to be a regular occurrence, your business will be losing out on two fronts: firstly, the money spent on any cash bonuses, and secondly, the considerable expenses the business will incur in replacing those who’ve decided to take their money and run.

In addition, consider the demographics that make up your workforce. Cash may seem like a perfectly reasonable way to encourage better performances at work, but there’s evidence to show this isn’t necessarily the case for Millennial and Gen-Z employees.

For example, an article published by SHRM highlighted that 79% of surveyed Gen-Z and Millennial employees said that an increase in recognition-based rewards (as opposed to annual bonuses) would make them more loyal to their employer. And rewards don’t have to be of the monetary variety, either. You may want to consider whether experiential rewards would be something your workforce would engage with better than just cash.

Clearly define your bonus scheme’s goals and qualifying criteria

If you’re using the prospect of a cash bonus to encourage your staff to work harder, it’s vital you set clear goals and qualifying criteria for your employees. Where possible, set performance-related goals that tie in with the overall objectives of your business, and determine the different criteria that’ll be used to assess who receives a monetary-based reward.

Having performance management software can make this a lot easier. The latest performance management software systems – such as Cezanne HR – provide managers with the tools they need to set performance-related objectives, schedule appraisals, build development plans and monitor progress – aiding scheme transparency and ensuring everyone is clear as to what is expected of them.

Also, good performance management software systems can help employees keep track of and update their own SMART objectives. When employees can log examples of objectives they’ve met and see how they’re progressing against any bonus-qualifying criteria, it can help them remain focused on both theirs and the company’s core goals.

Along with job-related objectives, you may want to include criteria based on your company values or desired culture. Employees who display the values and behaviours deemed critical to success can be vital assets to any business, so consider whether they should be rewarded, also.

Analyse, assess and improve

Once you have your scheme in place, regularly analyse its effects on your workforce and your business. Specifically, track the results of your bonus programme in relation to the SMART objectives set for your employees; but always be prepared to adapt and revise your scheme to the trading conditions of your business. If circumstances change, your goals will need to be reset, too.

As well as any statistical data you receive from your finance teams, continue to use pulse surveys or employee focus groups to gather continuous feedback. This way, you can learn whether any changes you implement to enhance your bonus scheme are really having the desired effect, or if they’re instead sowing the seeds of disengagement.