Cash bonuses do work, if you use them right 

Much has been written about how cash bonuses can actually damage a company's workforce, but if you handle them correctly, a bonus can have positive effects. Here's what to do:

• Base bonuses on specific company goals. Your objectives should be measurable: "Reduce customer returns by 10 percent," not "improve customer satisfaction." Bonuses should also be linked to your organization's success. Applying them to individual performance can create unhealthy competition: connecting them to the organization's goals encourages teamwork.

• Reward truly outstanding results. Don't give bonuses for average work such as meeting a particular production quota, for example, or employees will take the money for granted. Distribute bonuses for achieving exceptional results like exceeding the production quota by 25 percent, for instance.

• Conserve your financial resources. Don't feel obligated to give a bonus every year, whether you've made a profit or not. You don't want your employees to feel entitled to money that you can't afford to spend. They'll value their reward when they know it truly reflects their efforts toward helping the bottom line.

• Consider your timing. Don't lock yourself into the idea of awarding bonuses only at year's end. Rewards that are delayed frequently lose their power to reinforce behavior. Give bonuses at the close of an important project, or at the end of a busy season, or any other time that's appropriate.

 -Adapted from "Paying bonuses right," by Alice Bredin

Tie cash rewards to employees' personal dreams 

Cash can be a more effective reward if it helps employees achieve their personal dreams. A French medical manufacturer for example, puts aside over $55,000 a year to fund employees' personal dreams. One warehouse employee, for instance, received a bonus that allowed him to take a round-the-world ocean voyage with his family. Company officials think the rewards increase employee loyalty. "The more people feel tied to the company, the more they are able to blossom, the more effective they are at work," says the company's HR director. You may not have the resources to be quite so extravagant, but you can try to offer rewards that help employees pursue their dreams. 

-Adapted from "Make a wish" by Paul Nolan, in Potentials magazine

 Many companies pay employees a retention bonus for staying on board a certain length of time, but administering such a program can be tricky. Here are the key factors to consider:

• What conditions do you want to set? Typically employees earn their retention bonus after remaining on the job for a specified period of time: 90 days, six months, five years. Decide what's reasonable for your organization and industry, and spell out your terms in clear language.

• How substantial a bonus should you offer? Bonuses at most organizations vary from 10 percent to 50 percent of salary, although at some companies they can go as high as 300 percent. Keep in mind the employee's impact on the business and the competitive labor market.

• Do you want to give cash? Cash is only one possibility. Stock or options are another alternative, as are gifts like a car or personal computer, company paid trips, or extra vacation time. You might consider flexible scheduling, specialized training, and special projects as well.

• What specifically will you be rewarding? Some organizations may simply pay a bonus at the end of some predetermined time. For other companies, remaining until a particular date-January or April 15-may be crucial. You may also want to consider whether the bonus will be affected by other performance issues, and pay more or less based on how well the employee is doing.

-Adapted from "Cost of retaining key employees is less than the cost of replacing them," by Thomas B. Wilson, on the Rewards That Work Web Site

Incentives and other rewards can be important motivational tools, but they're next to useless by themselves. A financial incentive can show employees that you appreciate their performance, but distributing the reward without expressing appreciation can actually cause employees to grow more cynical than if you handed out no reward at all. Tell your workers how much you appreciate their work, so they recognize that financial rewards are a form of the organization's appreciation-not a substitute for it.

-Adapted from "Factors in employee motivation/satisfaction," by Steve Falkenberg, Department of Psychology, Eastern Kentucky University

For more information contact Steve O'Connor at the MHA Services Corporation at (517) 485-3240 or email him at soconnor@lans.mha.org.