Bonuses, Raises and Promotions

In most organizations there is a hierarchy of management. Performance of the entire organization is directly correlated to the effectiveness of this hierarchy in leading, making decisions, distributing work, and solving complex problems. In our organization management distributes performance based bonuses, adjusts salaries and promotes people to new responsibilities yearly. This year the process has been different from prior years because of different management.

Let us assume Jane the director is responsible for two managers Bob and Joe who in turn are responsible for ten employees each. Mary the top performing individual contributor in the group also reports directly to Jane. Assume Jane has to distribute bonuses to her organization but she has been told that 20% should get nothing to ensure that the top performers are rewarded as best as possible. How should she go about it?

Option 1: Jane can distribute the bonuses directly to everyone. This might seem easy and the logical way to distribute the money but I feel this is completely unfair because chances are she would not know the full extent of the contribution of each individual in a large organization. Furthermore, she will most likely demotivate her managers Bob and Joe by excluding them from the decision making process. In order for this process to work, she must make sure that the performance of each individual is evaluated fairly and is well documented prior to the reward distribution. Performance evaluations must include feedback from peers, managers, and employees. Without this thorough evaluation any distribution is based on subjective judgements and more recent performance of an employee rather than the performance during the entire time horizon for which rewards are distributed. She must clearly communicate her reasons for using this method to Bob and Joe, the managers in her team. In any case, she should never ask one manager to compare or rank employees in his team against those in another team. This comparison is highly subjective, incomplete, incorrect and demotivates both managers, and their employees in the long run.

Option 2: She can evaluate the performance of the teams and reward each team accordingly giving the responsibility to distribute the bonuses between team members to her managers Bob and Joe. This method empowers Bob and Joe to manage the way they consider best. Along with empowerment comes the responsibility to deliver the best results possible. Empowering people also creates loyalty and trust. Even with this option, it is a good idea to complete thorough performance appraisals prior to distributing rewards. The fairness of the reward is better understood and appreciated after an appraisal discussion with an employee. With this option, Jane can also save some of the pool to reward the performance of her star performers.

Option 3: Jane can meet with Bob and Joe and attempt to determine how to best distribute the reward. Unfortunately even though this may seem like a fair process, Bob and Joe cannot help determine how to fairly distribute the rewards because they are impacted by such distribution. This process is a zero sum game where Bob’s win is Joe’s loss. Such a situation must be avoided because it promotes internal competition which takes away energy, time and resources from competing externally and progressing the tangible results of the organization.

Distribution of rewards must be carried out very carefully to maximize the motivational impact of such a process. Expectations of the recipient play a critical role in this process. If an employee expects a 20% bonus but is given 15%, this will demotivate her. If she on the other hand expects 10% but receives 15% she will be pleasantly surprised. Factors such as past reward history, current performance, external market forces and personal situations affect employee expectation. Managers must realize that rewards in a workplace are similar to grades on a school paper. The manner in which the process is carried out usually matters more than the actual rewards that are being distributed. Even if the final amounts are greater than expected, the process by which they are handed out still can significantly impact both employee and manager perceptions. Finally, motivating managers is just as important, if not more important, as motivating individual contributors.

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