Will your staff expect a Christmas bonus next month? More importantly, will you be paying one?
There are all sorts of reasons why this tradition has taken root in British business culture. However, since ‘it’s always been done this way’ is not the way we approach any part of our business, we decided to look at whether an extra payments were actually motivating our staff.
The results made us change our thinking completely.
The first thing a SME owner must consider is how bonuses – at Christmas and throughout the year – are allocated. Is it the same amount across the board? Is it based on that year’s profitability? Is it based on personal KPIs, which may lead to your sales team taking bigger bonuses?
A study by the Massachusetts Institute of Technology looked at how people perform different tasks set against the reward that’s on offer. It found that bonuses had a major impact on the performance of basic and mechanical tasks, such as factory work or warehouse packing, but zero effect on tasks that required creative or conceptual thinking.
That led us to try something out. In our company, we took away the link between hitting targets and the bonuses that were available. There was no change in staff KPIs -targets that were previously being achieved continued to be so and those that were not, continued to be missed.
What came across loud and clear was that any failure to hit target had nothing to do with whether there was a bonus at the end of it. It wouldn’t have been appropriate to dangle a financial carrot where failed targets are concerned. Everyone in the company was working to the best of their ability.
So we pin-pointed what KPI was the sticking point – abandoned calls. Digging a little deeper, it became clear that the target was impossible to reach due to a lack of staff numbers. Our bonus had turned from being a monthly incentive into a punishment that was affecting the mood of the office.
To improve performance, we highlighted three basic areas – autonomy (taking control of your tasks and results), mastery (continual learning) and purpose. The last one was the most important. Cash bonuses were actually getting in the way of our staff’s purpose, the shared goal that we all want to see the company succeed.
We hire people who want to learn and improve. Every employee’s role in the company is made clear from the start and by achieving individually we can grow as a business. In turn, this creates more opportunities for all, including pay rises.
Now instead of bonuses, our basic levels of pay have been improved. Removing bonuses has taken away the worries over money that prevented some from concentrating fully on their jobs. Any successes achieved through autonomy and mastery receive a simple ‘thank you’.
Of course, money motivates. However, in our experience, paying everyone enough in the first place means they are happy to work towards the common goal of making the company they work for successful.
Not having a Christmas bonus doesn’t make you Scrooge – and might actually improve the performance of your business. That’s a present everyone would wish for.