Motivated, engaged employees are crucial for any company’s success, no matter what its size. Research has consistently shown that performance-based financial incentives improve employee performance. Knowing when to pay financial incentives and what type of payment you should make is crucial to ensuring you get the most for your money in terms of the impact that the payment has on your employees and business.
Timing Payments Appropriately
Performance-based incentive payments usually occur following the end of the fiscal year. Even if your fiscal year coincides with the calendar year, it’s important to make sure performance-based payments aren’t made near the holidays. Bonuses or salary adjustments should be made between mid-January and October, when they will not be confused for holiday gifts. Performance bonuses given around the holidays can be seen as an act of gratitude by the employer instead of a way to recognize employee performance. If the payment of bonuses near the holidays isn’t universal (as is the case for most performance-based payments) the psychological and emotional impact of not receiving a bonus is greater than if they weren’t rewarded with a bonus during other times of the year because of the perception of the bonus being tied to the holiday season instead of performance.
Business Case for Bonuses
Employee motivation tends to correlate directly with the difference on their paycheck, and when employees see little difference, employers are likely to see little increase in performance. A study by Cornell found that giving a 1 percent raise boosted employee job performance by roughly 2 percent while that same money in the form of a bonus that is strongly linked to a job well done can improve job performance by almost 20 percent.
This may be especially true for hourly employee where a few more cents per hour is unlikely to be perceived as meaningful or to increase their buying power in the short-term. A one-time payment may enable those same employees to make a large planned purchase or pay off debt, making the payment more tangible to the employee in both the perceived amount of recognition received as well as the direct impact to their present financial health.
One-time bonuses also have year-over-year advantages for employers. A raise in salary obligates the company to pay the employee more in subsequent years, regardless of company performance, so the additional expense of a raise is felt on the balance sheet every year. Bonus payments allow the company greater flexibility to share successful years with employees without incurring any future obligations. This gives the company the best of both worlds, being able to keep costs consistent in years where performance is stagnant and to reward employees during years of growth or high performance.