Science Daily Week: Which is more effective: bonuses or raises?

Re Sweetening the Till….all roads lead to Robert Cialdini’s”Influence-Science and Practice” and his rule of reciprocation-a must read for all who seek to influence!

Hi Guy,
Wasn’t it Florida’s book on the creative economy that stated that creative professionals actually don’t respond to bonuses the same way other employment categories do. I wonder if the study could segment based on role or background?

Getting employees excited about a common goal (and not just some flimsy mission statement) will have a bigger effect on productivity than either bonuses or raises.
Unfortunately, most companies these days lack any sort of worthwhile goals (let alone goals that anyone could get excited about) so they’re forced to dangle more cheese in front of their workers just to get them to do the job that they were hired for.
It’s a sad reality for both groups.

Risking stating the obvious, it all depends on the culture of the company, and how work is developed.
In Wall Street, for instance, traders are given bonuses based on performance, which makes sense, since trader work pretty much alone, or then, in small teams.
If you are in Silicon Valley, and you want to develop a new top-notch product, you’ll need a lot of people and a lot of time. When a project’s success depends on large-scale team work, performance-based bonuses can lead to unfair compensation, and thus, to a horrible working environment.
A bit off-topic, but relevant: many question that the Nobel Prize structure makes no sense since financial compensation is awarded to a maximum of 3 people, when the research project that lead to a given breakthrough involved many more.
Just my 2 cents…

It’s good to consider what’s motivating to the individual rather than to the organization. (To you, X might be a benefit; to me, it’s a feature with no value.)
As an “individual contributor” I was awarded a four-figure bonus. I could take it all at once, or let it ride for a year and get double.
Obviously the creation of some skin-in-the-game type, the “let it ride” offer had a downside: if I left the organization before the year was up, I got zero.
The message to me was “we don’t think you’re likely to stay.” And also, “If you leave, the accomplishment we are recognizing wasn’t really worth anything.”
In theory that’s true for senior-executive stock options; in reality we see that NewBiz, Inc., showers largesse on the incoming big cheese at least equal to the allegedly at-risk, not-yet-vested options.
As for group rewards, they’re even more complex, and run the risk of encouraging so-called social loafing.

This would imply that you might back check if your teammates gave you a bonus. Could be an interesting experiment.
*******************
It would take a lot of money to make me backcheck. I should play defense–those people never backcheck.
Guy

It’s interesting to note that the study came out of the hospitality industry. Traditionally this industry has starting wages for some positions at or near minimum wage and relies on knowledge growth to get a promotion to a more difficult (and slightly higher paying) job.
In many organizations, performance bonuses don’t even exist until an employee enters the management program. Perhaps if more restaurants and retailers offered performance bonuses, there would be less pressure on minimum wage legislation.
Just a thought.

My experience has been that once a business gets too big bonuses stifle it. Here’s the sceneario – managers fighting over bonuses by constantly merging departments and divisions so their division gets the credit for a success and the bonus goes to the head of the department/division that owns it at the end of the year. I’ve seen it in Hollywood (every studio) and in technology (MS). What it does is kill innovation and incentive and make everyone watch their back. Fear of success, fear of failure – if you succeed someone else gets the credit and the bonus so no one tries to do anything that gets noticed or causes waves. The companies survive just fine because at the point this happens it’s usually a big enough machine that lack of innovation or quality is irrelevant – they’ve build so many sustaining businesses around their core products that the company can’t go out of business, but they also can’t do anything innovative or original. So in the end, what I found, raises are much better because you can never count on a bonus.

References to ‘culture’ in so many of the postings on this issue are spot on. The success – or otherwise – of a bonus scheme is powerfully influenced by culture, especially national culture. There’s a wonderful book that actually uses a bonus scheme as its central example of how different nations view bonuses: Fons Trompenaars’ Riding the Waves of Culture. A huge eye-opener. Almost on par with Cialdini. And, wow, that’s saying something.

I found this very interesting. I’ve read several articles that money is the least motivating thing to give an employee. Public recognition for a job well done all the way to just the “pat on the back” often provide performance boosts that exceed bonuses and raises. My understanding is that this type of recognition reinforces the employees sense of self worth and substantiates that they are a valuable part of a team.
Just a thought…

I wonder if this is similar to why more people go for offers with rebates rather than prefer lower prices generally…

I feel that combination of pay raises and bonuses are important and boost productivity. For instance, if I were to only get bonuses, I would feel as though I was in a dead end job and never going to be promoted. Conversely, if I were only getting pay raises, I may not know what activity on my part got me the raise. I say give regular bonuses to employees that have earned them for specific projects, then if the employee continues to improve some part of the business give them regular pay raises.
Eliot Dill
http://selfmade.eliotdill.com