Should Bonuses Act as a Service Charge or a Tip?- CuroComp

Should Bonuses act as a Service Charge or a Tip?

16th January 2017

Quarterly or annual bonuses are a way to reward employees for hard work already delivered, offer incentives to deliver in the future and act as an incentive to retain the best talent. However, with so many companies now offering regular bonuses to employees, is it treated as a ‘guaranteed award’ by the modern employee?

CuroComp CEO Gerry O’Neill has noticed a problem with the current way we are awarding bonuses. For starters, there are high profile examples of businesses and organisations using bonuses to reward failure – big banks and the NHS come to mind. Annual bonus schemes need to reflect performance, and not be given out as standard, or become an expected perk of the job. Equally there has to be greater differentiation in bonus awards for differing levels of performance. In a recent (2015) Mercer Report the average difference in base salary increase between a 3 (average) performer and a 5 (highest) performer was 2%. Put this in the context of the Bersin ‘hyperperfomer.’ These people represent 20% of a company’s employees yet deliver 80% of the value (defined as sales, revenue, profit etc). There is clearly a massive misalignment between reward and productivity!

Is your bonus scheme a tip or service charge?

When people eat at a restaurant, they usually don’t mind paying a tip if the service was of high quality – but it should be on their terms. When service charge gets added to a bill, especially when the service wasn’t up to scratch, most people begrudge paying it, and some will even refuse.

Let’s put this analogy to your current bonus scheme. Does it feel like you are tipping extra attentive staff, or is it an obligatory service charge handed out to all, when it hasn’t been earned?

Yes, bonuses can be used to attract and retain talent, but they should also be utilised to increase productivity and performance. A lot of companies offer the same compensation to everyone at the same career level, which often has no reflection on hard work and performance. This rarely works as an incentive or ‘a tip’ – as average employees are being rewarded just as much as exceptional employees. It’s time to decide who deserves a bigger bonus and who deserves less of a tip.

Measuring the impact of your bonus scheme is also of great importance. Don’t just presume that your compensation plan is working – analyse it and change it if you need to. Make sure you allocate your compensation spend in the most efficient way possible.