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Revamping Your Bonus Program

You've offered incentives, but your employees aren't meeting their goals. We'll help you fix your bonus program.

Q: I implemented a team bonus program several months ago. It worked great in the beginning but has recently lost its effectiveness. Even in this economy, the team goal is achievable, but they have not made it for the past three months. What should I do? Should I stop the bonus or increase it? I need help.

A: I will assume that your situation requires people to work together to attain results. The research on team incentives consistently shows that they produce lower performance than individual incentives. However, there are some situations where cooperation between people is important to achieve long-term success, particularly as it relates to customer service, morale and cost control. There are several ways to set up a bonus program. Let me discuss the pros and cons of each.

1. Team bonus. In this plan, all members of the team benefit equally or around some formula based on salary level or position. In this method, the best performers are almost always punished. If they work very hard to achieve the group target and discover that several members did little, then the top performers are punished because the rewards are the same for everybody. If the top performers work hard and the team doesn't make the goal because a number of the group do little (which is almost always the case), this causes the top people to resent those team members, and morale and performance suffers. Research indicates that in such cases the top performers will actually reduce effort. The advantage of this plan is ease of administration. The disadvantage is that it ultimately destroys a team or causes less than optimal performance. Because of the relatively rapid deterioration of performance, I would predict that there is a wide variance between the performance and contribution of the team members. I think that if you check, you will find some of the problems mentioned above. By the way, research shows that poor performers prefer team bonuses to individual bonuses. Top performers prefer individual incentives. It is easy to understand why in both cases.

2. Individual. Another way to set up an individual incentive or bonus plan where you need cooperation between employees is to include teamwork behaviors as a requirement for getting or maximizing the bonus. In a sales situation, you may want to give people points for sharing leads, helping scope out a proposal or helping a colleague with a sales presentation. This will eliminate one of the problems associated with this type of bonus plan: the narrow focus of the individual performer. The advantage of this plan is that only those who work hard are rewarded. In the team bonus, some people who don't work hard are often rewarded. The disadvantage of this approach is that even though people will help each other when asked, there's often a minimal concern for the success of others.

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3. Individual plus team bonus. In this format, the bulk of the bonus pool is given for the individual accomplishment but with some portion earned if the team meets its collective goal. This method ensures that the top performer will benefit from his/her labor but maximize income only from helping the group attain its goal. In many ways, this is the preferred method because it not only gets people interested in helping others, but also gives them a stake in the success of others. The advantage of this plan is that it channels discretionary effort toward not just helping others, but also focusing on things that will make them successful. The disadvantage is simply that, as with the individual plan, administration is more difficult.

In sum, my recommendation is not to increase the amount of the bonus, but to change it to the "individual plus team bonus" plan.


Aubrey C. Daniels, Ph.D., founder and CEO of management consulting firm Aubrey Daniels & Associates (ADA), is an internationally recognized author, speaker and expert on management and human performance issues. For more about ADA's seminars and consulting services or to order Aubrey's book Bringing Out the Best in People: How To Apply The Astonishing Power of Positive Reinforcement, visit www.aubreydaniels.com, or contact Laura Lee Glass at (800) 223-6191 or lglass@aubreydaniels.com.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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