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By S. Kumar
July 7, 2015

Whether you find personal satisfaction in your job or work purely for a paycheck, money is an important motivator. Intellectual stimulation or a sense of accomplishment are great to have but they don’t pay the bills. A common and popular mechanism used by companies to reward employees is the year-end bonus, which serves as a carrot for workers to aspire to as well as a stick for those who don’t perform.

But does it really work as it should and is a semi-annual bonus more effective in motivating employees?

Here is why a year-end bonus is problematic. Even though it ties employees down for a whole year with the company and theoretically makes them work hard for it all year round, twelve months is a long time and employees can lose their motivation during that period for a number of reasons. These include uncertainty and worry about whether they will be rewarded appropriately at the end of the year, lack of financial milestones along the way to indicate how they’re actually doing, and resentment at their bonus being withheld so long, especially if they’re struggling to meet financial obligations during the year.

Handing out bonuses twice a year, by contrast, can mitigate uncertainty, send a clear signal to employees about how well they’re performing, reduce their resentment at being forcibly tied to the company for an entire year, and enable them to lead a more comfortable life with money in their pocket. This in turn can engender more loyalty from employees and incentivize them to do their best work for a company that they feel cares about and values them.

In addition, since a bonus serves as the perfect report card, a semi-annual bonus can be used to encourage employees to adjust their performance during the course of the year instead of only at the end when they receive their annual performance review. That obviously benefits the company but can also help employees improve their work product and increase their chances of a receiving a higher bonus in the next cycle.

Finally, a side benefit for a company of a semi-annual bonus cycle is in budgeting. Since employee compensation is often a large portion of a business’s costs, handing out part of the bonus at mid-year can provide a more realistic assessment of the money left over to meet other operating costs and prompt the company to plan the rest of the year accordingly.

For all these reasons, businesses that hand out bonuses only once a year should consider changing their policy.

S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking. Kumar does not own shares of the companies mentioned in this article.

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