Are You Creating a Culture of Entitlement and Competition?

In an earlier post this week, I talked about a major problem with cash bonuses - they are often used to fulfill the wrong needs. In this post, I’ll cover two additional serious problems with using a cash-based award structure – entitlement and competition.

Entitlement – Bloomberg News recently reported the results of a survey showing, “More Wall Street employees received bonuses for 2008 than were expecting to, though many remained unhappy with them.” This screams of the entitlement attitude that soon follows when one comes to expect a bonus as part of a basic compensation package. As the survey author says, “What this shows is the bonus culture is very deep set in the securities industry. There’s an entitlement culture amongst a number of people in the industry, which I think in the current industry is very misplaced.”

I think many average workers would put that far more strongly. “Main Street” workers would likely say they are equally entitled to their hard-earned retirement funds, to their taxpayer dollars going to rebuild roads and schools instead of a corporate bailout, to retaining their jobs.

Unfortunately, that entitlement has been removed from them by those very Wall Street employees who are “not happy” with the bonuses they received for one of the worst market failures in history. There can be no sounder reason not to use cash-based bonuses as rewards.

Competition — The inventor of the Internet firewall, David Pensak, credits cash bonuses as killing the innovative spirit of employees (and thus companies’ competitive edge). David says in a recent article:

“Most people in corporations don't know when they're doing well. The only feedback [employees] get is cash bonuses. Cash bonuses help employees pay for things they have already bought. The money is immediately forgotten by the recipients, but not by their colleagues. Word spreads. One would ask, ‘I got only $500. Shouldn't I have gotten $1,500?’ When you need teams, this makes employees into competitors and undermines teamwork.”

Now more than ever leaders need their employees to pull together as a team. Unfortunately, the recession makes this more difficult as employees are afraid for their own jobs and angry over layoffs. But leaders certainly shouldn’t throw divisive cash bonuses into the mix. Strategic recognition of team efforts that ensures team members, whether located in Miami or Mumbai, receive the same value of award overcomes these competitive issues as well as allowing the recipient to choose a personally meaningful reward from millions of options.

Realize more return for your investment in recognition by kicking cash bonuses to the curb. As I explained extensively in this post, cash rewards also do not deliver the performance boost of non-cash rewards, as proven by numerous studies. Get more for your money while also creating an atmosphere of cooperation and a reason to keep performing at a high level.

Have you seen the fallout form cash rewards in your business? Tell us about it.