Have You Been Wasting Your Money on Cash Rewards?

Yes, budgets are slashed to the bone for many companies. And the US and UK news is thick with headlines on the misappropriation of bailout funds to pay billions of dollars in bonuses to banking and financial institution executives.

Lori Kletzer in a New York Times blog on Bonuses v. Bailout summarized some of my thinking on this topic saying, “The point of employee bonuses is to tie compensation to results. … Hence, workers get bonuses in good times, and get their ‘guaranteed’ salary in bad times. … But shouldn’t those workers get appropriately sized salaries without depending on bonuses?”

Precisely. From all I’ve been reading, a fundamental problem with the bonus culture on Wall Street is the morphing of the ratio of base salary to bonus in the last few decades. Employees are paid at a very low, relatively, base compensation rate, work the expected 70-100 hour weeks, and expect to see the compensation for those efforts in the annual bonus. This is completely out of whack.

Base pay should be equal to compensating for the expected workload, whether that is the standard 40-hour week or the ridiculous 100 hour week. Bonus should be just that – above and beyond compensation for those who go above and beyond their colleagues in effort. When nearly every employee receives significant bonuses, this differentiation is clearly lost.

In terms of Maslow’s Hierarchy of Needs and how Total Rewards aligns with it, base compensation is used to fulfill physiological needs (hunger, thirst) and safety needs (home, security, protection). Variable pay and bonuses then begin to address the higher order social needs with true non-cash, strategic recognition addressing the highest needs for self esteem and self actualization.

In the Financial Times, Lucy Kellaway recently addressed the need to help employees recover that sense of belonging, self esteem and self actualization at the top of Maslow’s pyramid of needs when companies are cutting the budgets that would typically address those areas. Lucy said:

“The easiest and cheapest way of cheering up demoralised workers is to tell them that they are doing a great job. It is one of the great mysteries of office life why most managers are so resistant to this when it does not cost one penny. Here is all they have to do: pick people off one by one (to do it in groups is lazy and quite spoils the impact) and say thank you and well done, and look as if they mean it.”

Individual, personal and meaningful appreciation – it’s amazing how far it will go.

What’s your take on the bonus culture? What would you do to fix it? What compensation and recognition changes are you seeing in your company? Tell me about it in comments.