Bonuses Gone Wrong? Are You Killing Your Employees’ Motivation?

Bonuses are meant to reward hard work and dedication, a paycheck-sized pat on the back. While they can lift one’s morale, they also come with a hidden twist: the fine line between motivation and disappointment.

WORDS AFFEZAH ALI

FEATURED EXPERT AFFEZAH ALI Industrial and Organizational Psychologist Senior Lecturer School of Liberal Arts and Sciences Faculty of Social Sciences and Leisure Management Taylor’s University.

When an employee opens an email titled ‘Your Bonus Statement’, anticipation runs high.

However, does the actual bonus match the reward envisioned?

Bonuses are often seen as a recognition for hard work and commitment, a tangible acknowledgment of effort. While bonuses can boost morale and motivation, they also carry a psychological catch: expectations versus reality.

BONUS GONE AWRY

Research shows that bonuses can catalyze increased effort, but when they fall short of expectations, it can lead to dissatisfaction.

This is because employees often view bonuses not only as financial rewards but as a reflection of their value to the organization.

• A bonus perceived as inadequate or unfair can harm morale, cause burnout, bring down trust in management, and foster resentment among colleagues.
• This phenomenon, known as the contrast effect, explains how employee’s expectations—based on verbal praise, past payouts, or industry benchmarks—can make a lower-than-anticipated bonus feel like a loss, even if it is objectively generous.

East versus West

In collectivist cultures like Malaysia, bonuses are often viewed as communal rewards. Employees may use bonuses to support their extended families, which increases the emotional significance of the payout.

In contrast, in individualistic cultures such as the United States, bonuses are typically seen as personal achievements, where fairness and transparency in allocation are crucial. While bonuses can boost short-term productivity, if they are seen as inconsistent or tied to unrealistic targets, they can undermine long-term performance.

BONUS HANGOVER

Some employees experience a bonus hangover.

• Their motivation spikes during bonus season but dips significantly afterward.
• This cycle can hinder sustainable performance and creativity.
• Moreover, when bonuses become the primary focus, intrinsic motivation–driven by meaningful or enjoyable work–may diminish.
• Employees may start asking “What’s in it for me?” rather than “How can I contribute to the organization’s success?”

HOW EMPLOYERS CAN LEVERAGE BONUSES TO MOTIVATE EMPLOYEES

Bonuses Should Reinforce Values and Goals

• Bonuses should reinforce an organization’s values and goals.
• A well-designed bonus system is not just about the payout, it communicates key messages to employees.
• For example, if innovation is a core value, linking bonuses to creative problem-solving or successful project launches can encourage desired behaviours.
• If teamwork is emphasized, team-based bonuses can foster collaboration and shared success.

Focus on Transparency

• Employees should understand how their bonuses are calculated, whether based on individual performance, team results, or company-wide profits.
• Clarity eliminates speculation and helps align expectations with reality.
• Personalize bonuses by linking them to specific milestones to reinforce the connection between effort and reward.
• Recognize individual contributions to boost morale.

Consider Non-Financial Bonuses as Well

• Paid time off, professional development opportunities, or symbolic rewards such as “Employee of the Year” can be equally motivating and foster long-term loyalty.

Tailor Bonus Strategies Accordingly

• Organizations operating across diverse cultures should tailor their bonus structures to local customs and expectations.
• In collectivist cultures, team-based bonuses may be more effective.
• Individual incentives may work better in individualistic cultures.
• A combination of annual bonuses and long-term incentives, like stock options or profit-sharing, encourages employees to focus on sustained organizational success, fostering loyalty, and reducing short-term thinking.

MOVING BEYOND ‘OLD-SCHOOL’ BONUSES

In an era where employees increasingly seek work-life balance and personal growth, rigid bonus systems may no longer suffice.

Flexible and personalized incentives, aligned with individual career aspirations, are becoming the new norm.

CONCLUSION

• Bonuses can be powerful motivators, but their effectiveness depends on how they are structured and perceived.
• By aligning bonus systems with clear expectations, cultural sensitivities, and long-term goals, organizations can turn bonuses into tools for sustained engagement and performance.
• As employers, remember, a bonus is not just a number. It reflects value, trust, and mutual respect! When done right, it fosters a motivated, satisfied, and loyal workforce capable of achieving great things.