When Times are Uncertain – Look to Bonuses, not Raises

When times are tough, it can be difficult to keep employees motivated, especially in sales organizations. Here's why you should use bonuses, not raises.

5 min read

This week @WorldatWork released results of their “Bonus Programs and Practices” survey. Rose Stanley (@WorldatWork_RS), Senior Practice Leader at World at Work was quoted here saying, "As merit budgets remain flat, employers aren't standing still and doing nothing in regards to compensation," Stanley said. "They are using bonus options as needed to recruit and retain top talent."

Companies are reticent to grant raises, due to the multiplier effect of an increase in salary on total costs. However, if you freeze all remunerative spending, you run the risk of losing those key employees who can carry you through the uncertain times. This then becomes a perfect time to implement performance-based incentives to reward and retain your workers.

While the WorldatWork study covers referral, sign-on, spot, and retention bonuses as possible tools – I would argue that focusing on the spot bonuses is the best investment of scarce funds. The problem with a retention bonus is that you are rewarding someone for finding another job.

Instead, companies should be ahead of the game and implementing measurable performance based bonus programs, communicating those to the employees, tracking their performance over time, and paying out on a quarterly basis. Incentive pay should not just be a lever at the executive level and in the sales bullpen—it should be used in all departments.

I first saw the possibility of variable pay for everyone when I bought a MIG welder from Lincoln Electric for my father. Bundled with the welder was a book written in 1946 by James F. Lincoln on Incentive Management. His philosophy of ensuring that a portion of profits be available to workers based on performance helped drive Lincoln Electric to new heights of profits and engineering excellence.

These incentives, however, were not limited to management or assembly line workers: “Incentive management is not a speed-up. It is a way of producing better methods of manufacture by spurring the thinking and imagination of all to better things in methods and machines of production, in techniques, and in the desire of all to accomplish.

The engineer, the time-study man, the purchasing department, and every other department are just as much a part in the more rapid production of every job as is the operator." Now is the time to expand your bonus eligible employee pool and pay for the performance you need to keep your place in the market – and better yet improve it while your competition panics.

Look at each team where you have critical employees whose departure would have a tangible impact on the performance of the firm. Determine HOW you can measure their performance, and further identify what “great” performance looks like. That great performance should have an impact on top and/or bottom line results for the company – thereby funding its own budget.

Once you have done this, you can start looking at variable incentives based on those hard measures, and pay out based on the value that the company will receive.

This can work for every department. I have argued that Marketing should be on a quota, with a commensurate incentive structure. I have seen engineering teams (especially those who follow the agile scrum methodology) tracked, measured, and paid for meeting or exceeding developmental milestones.

Lincoln shared the profits and the risk with everyone from shareholders to the entry-level worker on his assembly line. His efforts to share the profits made a difference, and by properly building out and communicating performance goals – and then paying for hitting or exceeding them – your company can excel as well.