Lovewell’s logic: Should bonuses be scrapped?

Debbie Lovewell-Tuck

Are bonuses an effective tool to drive employee performance? Or are they too often perceived as an entitlement rather than a reward for performance?

Earlier this week, Woodford Investment Management hit the headlines when it was revealed that founder Neil Woodford axed bonuses in favour of paying a flat basic salary to all employees. His rationale for doing so was that, in his opinion, bonus schemes encourage the wrong type of behaviour among employees. Rather than driving the long-term behaviours necessary for strong business performance and growth, Woodford believes bonuses instead, too often, focus recipients on the short-term goals linked to bonus triggers.

There is also the risk that employees could come to see bonus payments as an expected benefit rather than one which has to be earned. If this is allowed to embed itself within a workforce, it could serve to demotivate staff if performance targets are not hit – the very opposite to what the scheme is intended to achieve.

Paying staff a flat basic salary, without commission or bonus payments, therefore can overcome such issues. In order to ensure employees do not lose out financially in the transition, Woodford Investment Management increased basic salaries for its entire workforce.

But, in teams where salaries are set against the same criteria, could this impact on staff motivation and engagement levels if high performers are rewarded on the same basis as those that may not be pulling their weight?

So, do bonuses still have a place in modern reward strategies? Or should employers look to more tailored alternatives in order to meet their organisation’s business needs?

Debbie Lovewell-Tuck
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