Make Year-End Bonuses Meaningful

In his new book, Dan Ariely points out the downsides of financial incentives. But a bonus that's connected to real recognition can have an impact.

It’s December, which means we’re drawing to the end of another year. And for a lot of organizations, that also means it’s time to think about those end-of-the-year bonuses. I’m the last person who wants to stand in the way of good workers receiving a little extra for the holidays. But it also seems timely to point out that something extra in the year-end paycheck won’t necessarily move the needle very far when it comes to motivation.

I come to this point by way of Dan Ariely, whose new book, Payoff: The Hidden Logic That Shapes Our Motivations (reviewed recently in Associations Now), reveals that our sense of what engages employees tends to be misguided. Consider those bonuses: They unquestionably are a nice thing for workers to find in their year-end paychecks, but as far as inspiring better and more focused work, they can actually be counterproductive.

In the book, Ariely points to studies that show that bonuses can reduce productivity, and that’s particularly true when those financial incentives are provided in work contexts where the employee feels there are few opportunities for engagement or growth. “Managers need to take into account (and measure) not only the direct effect of different incentives, but also their delayed and enduring outcomes,” he writes in the book. “The more a company can offer employees opportunities for meaning and connection, the harder those employees are likely to work and the more enduring their loyalty is likely to be.”

“To think that CEOs are just working for a bonus is just completely crazy.”

Ariely’s website recently summarized the point in a clever, straightforward cartoon—point being, money only speaks to one kind of self-worth at the workplace. And lest you think that this is just a matter for rank-and-file workers, Ariely is pretty down on CEO bonuses as well. Last week, he told the Washington Post that a CEO bonus carries an implication that the boss is lazy and requires some spine-straightening financial stimulus. But that’s rarely if ever the case. “CEOs are deeply involved in their companies,” he says. “Their egos are tied to it. The second thing they tell you after they say their name, often before they tell you how many kids they have and what hobbies they have is what company they are leading. To think that they’re just working for a bonus is just completely crazy.”

I’ve written recently about associations that have rejiggered their performance-review processes to integrate some of this thinking, as it’s become clear that checkbox reviews aren’t speaking to employee needs. Compliments, as Ariely points out, can go a long way to helping employees feel more engaged on the job. But, even then, that doesn’t necessarily mean that an awards program is a solution; not every employee wants or needs that kind of public recognition.

So what to do? Organizations understandably don’t have the time to customize performance reviews for every employee, or track what kind of compliment works best for whom. (Which one likes the Starbucks gift card again? Who gets a charge out of the handwritten note?) But Ariely’s research in some ways also simplifies matters. It reveals that the main goal of motivation is not so much to identify what dollar figure helps keep them around or what kind of reward generates the most positive feeling, but to identify what part of their job they feel the strongest sense of ownership toward, and then to cultivate that feeling. “We are strongly motivated by the need for recognition, a sense of accomplishment, and feeling of creation,” Ariely has written. As more workplaces move from annual-reviews to more of a check-in culture, managers would do well to seek out the places where their employees have that feeling.

Again, none of this is meant to suggest you should do away with those end-of-the-year bonuses. I might suggest, though, that those bonuses come connected to some explicit recognition of what the worker did to earn it. Early in my career, a publication I worked at asked me to take on the duties of a manager who was going on vacation for a few weeks. I wasn’t quite sure I was up to the task; I suspected my boss felt the same, at least a little. But late one evening, with the stretch nearing its end and the building still standing, my boss swung by with a gift card good for a better-than-average meal at a better-than-average downtown restaurant. I’ve received larger bonuses since then. But in the two decades I’ve been a gainfully employed adult, that’s the only case where I can explicitly remember how much the reward was, what it was for, and how much it meant.

What do you do to balance financial incentives and less tangible forms of motivation for your employees? Share your experiences in the comments.


Mark Athitakis

By Mark Athitakis

Mark Athitakis, a contributing editor for Associations Now, has written on nonprofits, the arts, and leadership for a variety of publications. He is a coauthor of The Dumbest Moments in Business History and hopes you never qualify for the sequel. MORE

Got an article tip for us? Contact us and let us know!