Forget the Annual Bonus -- Hand Them Out All The Time

Last Updated Sep 24, 2010 12:49 PM EDT

What are bonuses supposed to do? Reward great performance, or motivate great performance?

The annual bonus rewards past performance. Most studies I've seen report that bonuses are not great at motivating current performance, unless the employee is doing piece work.

What works better? Eric Mosley, writing on HBR.org, suggests frequent but smaller payments given to a large numbers of employees.

"The answer is a more strategic, thoughtful approach to conditional rewards, involving smaller payouts given year round and, critically, targeting the vast majority of the workforce -- not just a privileged few. "

Employees earn one of these payments for actions that reflect company goals or values, not for specific project work. I could see, for example, rewarding a team leader for her determination to involve junior staff members on a critical decision rather than for a successful outcome of the project.

I wonder if the most successful bonus program shouldn't be a blend that targets individual goals with corporate milestones? How would you structure a rewards program?

(Photo by Flickr user gregoconnell, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.