After the financial meltdown of 2008 and the following recession, big bonuses came under attack, and many pundits predicted the end of annual added compensation.
That didn’t happen. But recent comments made by Deutsche Bank’s co-CEO John Cryan have brought the debate back into the news. Deutsche Bank is in the midst of reorganizing; the bank was fined a record $2.5 billion recently for Libor rate-fixing. Deutsche Bank’s bonus pool might be cut, and banking is not the only industry that’s reigning in bonuses this year—some leading law firms are giving out modest bonuses this year as well.
As reported in Bloomberg, Cryan told attendees at a recent conference that the way bonuses are structured doesn’t make sense. He said he doesn’t think money drives work performance, nor should it:
“I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.”
Funnily enough (in the U.S. at least), the beginning of bonuses goes back to another financial giant: J.P. Morgan. In 1902, employees were given a full year’s salary on top of their regular compensation. Over the years, whether it’s a turkey or a check, bonuses have become an expectation for many employees. It took only about 50 years before bonuses became viewed as a right instead of a gift.
Do bonuses change how employees work?
Cryan may think bonuses don’t affect performance, but the results of studies on the subject are all over the place.
One study found that workers given cash as a gift after they were hired were more productive. But other studies have found that bonuses actually have the opposite effect. According to this HBR.org piece:
“First, monetary rewards tend to decrease the individual’s intrinsic motivation and interest for the job. Second, unless the job is extremely simple (requiring no creativity, problem-solving, or complex reasoning abilities), monetary rewards can paradoxically impair performance by leading employees to focus too much on the upcoming extra cash. Finally, when employees compare their end-of-year bonuses, we see more jealousy, anxiety, and competition, and less trust, sharing, and teamwork in the workplace. If your employees are working in groups, the effect is compounded: Deterioration of these relationships damages both their individual happiness as well as how they work together as a team.”
That paragraph could make many a Cryan-aligned CEO permanently pull the plug on bonuses. What the authors of the article recommend instead is what they’re calling “prosocial bonuses,” where employees are given money to be given to a charity of their choice.
Regarding the concerns about teamwork, other studies show team-based bonuses do improve productivity.
There are some who think bonuses should be split into twice-yearly awards instead, as a means to motivate and foster loyalty.
But employees don’t always want cash or equivalent bonuses. This survey shows 45 percent of employee respondents would like a combination of benefits. Some companies offer student loan payments or loan refinancing to attract younger workers. Others are offering benefits like extra time off and even gift cards.
The problem with this approach, of course, is that it often comes in lieu of higher salaries or annual raises, which may help companies keep operating costs down, but is not particularly good for employees. Someone in Deutsche Bank’s Cryan’s position, for example, is probably not worried about paying a big medical bill or monthly car payments, or starting an emergency savings account. A big bonus could make less of a difference to some than a small bonus could for those at a lesser pay grade.
And there’s always a company or three bucking the trend: This Texas company gave all employees a $100,000 bonus (prorated). Clearly, for some, the bonus is alive and well.
Want more thoughts on how to show appreciation to your employees and clients? See 5 Ways To Give Thanks This Holiday Season.