Why Most Bonus Schemes Don’t Work

As a business owner, you want to motivate your employees to perform at their best and achieve the company’s goals. One common way of doing this is by offering bonuses as an incentive. However, recent studies show that most bonus schemes don’t work and could cost you money.

Research has found that traditional bonus schemes, such as performance-based pay, can actually harm employee motivation, morale, and productivity. This is because bonuses are often viewed as an entitlement rather than a reward for exceptional performance. Employees may feel that they are being unfairly treated if they don’t receive a bonus, even if their performance is satisfactory.

Furthermore, bonus schemes can create a sense of competition among employees, which can lead to a toxic work environment. Employees may focus more on outperforming their peers rather than collaborating and working together towards a common goal.

So, what is the alternative to traditional bonus schemes? One solution is to offer non-monetary incentives, such as flexible work arrangements, paid time off, or professional development opportunities. These incentives can be more meaningful to employees and increase job satisfaction and loyalty to the company.

Another solution is to implement a profit-sharing or equity compensation plan. As we discussed in a previous article, offering equity to your key employees can be a powerful tool for motivating and retaining your top talent. Profit-sharing plans, on the other hand, allow employees to share in the company’s financial success without creating a sense of competition or entitlement.

In conclusion, relying solely on traditional bonus schemes to motivate your employees could waste money and create a toxic work environment. Consider offering non-monetary incentives or implementing a profit-sharing or equity compensation plan instead. Doing so can create a positive work environment that fosters collaboration, loyalty, and productivity.

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.