What If Money Wasn’t the Main Component of Your Performance Bonus?

Performance bonusSome of what you are going to read might surprise you.

What do you think most of people think about when they hear the word ‘performance bonus‘?

If you said ‘Money’, you are in the majority.

We all know that performance bonus is a reward for the hard (smart) work employees have put in, and is a sort of motivation to work better – if not as much as they did earlier.

But the question is, is money = motivation?

We certainly seem to be treating it to be so. At least, majority of the organizations are.

Let us look at some of the research findings.

Prof. Dan Ariely is a well-known researcher in Behavioral Economics – a study of human behavior where money is involved, in simpler terms (a long and complex definition here).

He shares that there are 7 combining factors that lead to motivation for an employee.


Professor Ariely argues that it is even immoral and unfair on shareholders, for companies to think that only money motivates employees and thus give them a good portion of company’s profits as performance bonus, instead of identifying non-monetary means of motivating people.

Now I can see that those of you who are not happy with the amount of performance bonus you’ve got are not feeling comfortable. 🙂 As I said earlier, we are looking at research findings here. So please bear with me here.

Professor shares a story about a high profile banker working on the Wall street. He was known to professor and told him his story.

It was that time of the year where bonuses are given to bankers (a figure many times over the annual salary of a well-paid software engineer!). His wife was about to give birth and the banker was hassled with long commute and thus the prospects of not being able to spend enough time with his wife.

His boss decided to give rather small bonus and in addition offered his own apartment in the city for the banker to move in with his family.

The banker said to professor that in pure monetary terms the rent for apartment for whole year was much lesser than the bonus, but this act was thoughtful, useful and impacted his life in different ways.

And that from that point onwards, he could not think of his job in pure monetary terms!

How’s that for a bonus? The boss really seem to have gone beyond his work boundaries to think of something that motivated the employee in ways only he could relate to.

Here is another example.

Imagine, it’s your birthday and you have invited your friends over for dinner. Imagine two scenarios of how this turns out.

In the first scenario, each of your friends came in, wished you and handed over $20 as your birthday gift. Since there are 6 of your friends you have $120.

In the second scenario, your friends gave you gifts. They knew your likes and dislikes – one brought a bottle of wine, another flowers, third one a latest book from your favorite author, fourth one the box of donuts you loved, fifth one a lovely crystal pen holder with a watch, and sixth one your favorite music CD. All of them then made some noise and handed you a big birthday card signed by everyone at your department at office.

Years down the line, which scenario you are likely to remember if that had happened? The one where you got money (that you probably spent on something you don’t remember now) or the one where you got stuff that you were emotionally connected with?

A thoughtful gift can mean much more than money.

This doesn’t mean that money is not important, it IS. The point is that there are many other things apart from money that make up for motivation – and so, thinking in purely monetary terms for motivation is not the smartest way for companies.

Now, if this reminds you of your HR manager (or CEO) talking about being part of the family, there is a huge implication to this approach – while it is definitely the best way to treat employees. Only if done genuinely.

Let me explain, with another one of Professor’s examples.

Imagine you were invited by your in-laws for dinner. You brought a fine bottle of wine with you, and at the end of the meal you appreciated heartily the lovely food your mother-in-law had prepared for you.

Now, imagine instead, you after having the food you handed over a $100 bill (more than the cost of bottle of wine) to your mother-in-law for the lovely dinner she had prepared for you.

How would you imagine the scenario to be?


What went wrong here? The money offered was more than the bottle of wine you would have bought, so it had to be clearly of more worth to the in-laws. Right?

What happened here is a concocted poisonous mixture of ‘Social norms’ and ‘Market norms’. In social norms social currency (love, respect, generosity, cooperation) works, and in Market norms money works. If these are mixed, it can lead to disastrous results.

‘Social norms’ Vs ‘Market norms’

When CEO talks about being family, and means so and you accept it, this means that you will voluntarily work more and at unexpected hours for the organization. At the same time, if you are in some sort of trouble your company goes out of its ways to help you (even taking productivity hit and absorbing costs). When that happens, you will love working with the company and likely will not leave the job when another company offers a higher compensation.

You and your company are operating under social norms here.

That’s what it means.

If it’s a one way street, this model falls apart.

What works today as components of performance bonus?

In the knowledge working environment such as today, there are other aspects of job that is motivating – meaningful work, a sense of belonging, feeling of contribution to a bigger cause, pride in the work, joy of conquering challenging work, and creation of something of value – a combination of these factors carry much more meaning to employees that just the money.

Hence the way employers look at bonus is changing – slowly but surely.

Adam Smith’s focus on ‘Efficiency’ (“Work should be specialized, and a production line environment is most effective”) during industrial era is being trumped by Carl Marx’s focus on ‘Meaning’ (“When work has meaning, people are more connected to the output”) in this knowledge economy.

With this in mind, getting purely money as performance bonus might seem good in the short term – but with the lack of rest of the factors professor pointed out, this will not be beneficial long term.

What is your thought on the utility value of money as bonus? Share in Comments below.

Image courtesy megangoodchild

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