Don't you love it when you get a bonus? Your month is almost over, you made your numbers, and, out of the blue, someone needs a bridge or veneers before a high school reunion. Whatever the scenario, the last dollar you earn in any month is all gravy. The first of the month we owe many bills. Rent payments, mortgage payments, and student loans are typically due on the first. The first of the month is the time when our biggest bills are due and we have produced nothing. Once we have paid all the bills, the bonus dollars can be used for anything. There is nothing more fun than imagining all the ways you can spend an extra $500 or $1,000.
I hate bonus systems. I love a bonus, you love a bonus, your staff loves a bonus .... but bonus systems don't work! They don't work because they are systems. As soon as a bonus has been received on an on-going basis, it is no longer a bonus. It is regular compensation. Holiday bonuses are even worse than bonuses based on productivity.
Let me tell you a true story of a holiday bonus meltdown. Dr. C and his wife loved the holidays and were always generous with their staff. The employees were always invited to the doctor's home, where they enjoyed a lavish party with great food and gifts, including a sizable cash bonus. This went on for a number of years until, one year, the practice had a very bad year. Expenses were up and productivity declined significantly; the doctor was struggling. There simply was not enough money for cash bonuses, and this fact was announced to the staff. The night of the party came and no one showed up. The situation deteriorated further until January 2, when all patient appointments were cancelled and the doctor began interviews for an entirely new staff.
Let's examine some rules for bonuses. By doing this, we will understand how Dr. C set himself up for disaster:
Rule 1 - Avoid on-going bonus structures. Occasional spot bonuses are far more motivating. People grow to depend on bonuses that are awarded regularly. In the case of Dr. C, several of his employees were so used to receiving an annual bonus that they already had spent the money. The sudden hardship created by the loss of an expected bonus created animosity.
Rule 2 - Bonuses must be tied to specific actions of the employees. Whenever you award a bonus, you should take the opportunity to recognize the employee's actions. For many people, the praise and recognition motivates them far more than the money. The only action an employee takes to receive a holiday bonus is to stay in your employ through Christmas. If you are going to try to motivate behavior, you should look for more results-oriented behaviors than simply being there. Recognition does not have to cost money. At Hewlett-Packard, one of the most coveted awards that can be bestowed on an inventive employee is a banana.
Rule 3 - Everyone must know the rules and there must be transparency. Transparency is an accounting term that essentially means that everyone must be able to see where you got your figures and how you arrived at your conclusions. This was Dr. C's major mistake. The staff was unaware of his financial difficulties and had no idea their bonus money was at stake. If you are unwilling to allow your staff members to have anytime access to the financial information pertinent to their bonus, you risk being seen as arbitrary.
Bonus systems can be based on many things, but the most important rule is:
Rule 4 - Your ultimate goal with any bonus is to reward your staff and share the good fortune of increased profits. Your hope is that by reinforcing the behaviors that increased your profits, you will increase the likelihood of future increased profits. The worst bonus systems, such as the holiday bonus, only reinforce the passage of time.
I believe an exceptional staff who performs at an exceptional level should be highly rewarded. I also believe that if you want them to routinely perform at an exceptional level on a daily basis, their daily base pay should be very high. If you are interested in ways of rewarding employees that don't cost a lot of money, I would recommend the book, "1001 Ways To Reward Employees" by Bob Nelson. Bonuses can be very difficult to implement and, at worst, they can actually create staff problems. If you become inventive with your awards, you will give your staff the type of recognition they both deserve and appreciate.
Dr. Michael Gradeless, a 1980 graduate of Indiana University, practices preventive dentistry in Indianapolis with an emphasis on cosmetics and implants. He is an adjunct faculty member at Indiana University, where he teaches the Pride Institute university curriculum of dental management. He also is the editor for the Indiana Dental Association. Contact him at (317) 841-3130 or email to email@example.com.