Businesses are only as good as their best assets. It may sound like a greeting card sentiment, but it’s absolutely the truth.
Hiring the right people shouldn’t be your only concern. In any industry, growth and success are only possible when top talent is fully bought-in and authentically motivated. That means that maximizing business returns requires an intentional strategy to ensure that smart, talented professionals see the incentive in working up to their superstar potential on a yearly, quarterly, and daily basis.
Cash bonuses are a classic way to reward and motivate employees around the holidays or at end-of-year, but they can also be incorporated as part of a regular employee engagement and retention strategy that helps top talent buy into your culture and maximize their work hours to deliver business-growing results.
In this article we’ll cover:
● Why cash bonuses are so powerful
● Why cash bonuses aren’t just for big, established companies
● Ways businesses can create an effective, fair cash bonus strategy
The Power of Cash
Cash is a powerful motivator. At the end of the day, it’s why most people go to work. Unfortunately, though, life gets in the way, and thanks to bills and other financial obligations, very few professionals feel like they’re ever able to fully enjoy the salary they earn.
More than ever, young professionals with impressive talents are also managing impressive debt. For many 35 and under, getting the right qualifications and building their skill set required $100,000 or more in student loans. That’s why, unlike any generation before them, rising millennial executives and top Gen Y talent often live bill-to-bill and paycheck-to-paycheck in a way that was previously associated with blue collar work.
Cash-strapped anxiety among white collar professionals isn’t limited to young talent, however. Increasingly, senior executives and professionals beginning to eye retirement must choose between today and tomorrow, finding themselves forced to either wear the belt tighter than ever in the closing years of their careers or risk outliving their retirement savings.
Most HR directors have recognized these emerging trends over recent years, but few businesses have articulated a strategy for alleviating these stressors. Salaries cover the bills, but can employees really be expected to do their best, biggest, most impactful thinking and work when they’re just covering the bills? Can innovation at the business or national level continue when people feel like they’re barely scraping by?
Pushing talented professionals at both the leadership and individual level requires genuine incentive, and in the current climate, cash is the greatest possible incentive.
Cash bonuses invite employees to make the purchases they want, not just the purchases they need, and get a direct, powerful snapshot of how their effort and hard work directly result in money and buying power. Whether it’s upgrading the TV, pulling together a down payment for a house, or planning a family vacation, a cash bonus at the right time can provide a significant lifestyle upgrade or a major weight off the shoulders.
While salary, benefits, and even equity show employees how they are valued in the talent marketplace, bonuses help them see how they are appreciated by their current employer. A timely cash bonus illustrates both company satisfaction with current performance and commitment to the worker’s long-term fluidity. This helps build the degree of buy-in that pushes brilliant minds toward innovation and profitability.
In the current climate, top talent is presented with more chances to switch teams and explore new opportunities than ever before. Maintaining a strong, highly motivated team requires providing compensation that doesn’t just work for employees but actively makes them feel good at what they do and the culture of the place in which they work.
Too often, people have mischaracterized cash bonuses as “buying loyalty,” but the fact of the matter is that in a diverse, competitive talent market, it is the employer who needs to demonstrate loyalty in order to maintain their top rising talent and motivate them to grow with the business.
When faced with the option of continuing at a company that offers cash bonuses, moving to a parallel role at a new employer that does not offer cash bonuses, or transitioning toward freelancing/consultation, there’s simply no question which situation the compensation-minded employee will choose, especially if they have a TV, house, or seat at a private school for their child that a bonus helped them afford.
Aren’t Cash Bonuses Just for Big Companies?
While many employers provide informal holiday or end-of-year bonuses, few have a clear, consistent cash bonus strategy. That’s in part due to the misconception that in order to offer employees a lump cash sum above their salary, you need a Fortune 500 bank account. In fact, lots of small and medium-sized businesses have never even considered offering regular cash bonuses because they’re not sure they can afford it.
Actually, well-scaled cash bonuses are one of the most effective ways small and medium-sized businesses can push their top talent to achieve and make themselves stand out compared to the competition. Bonuses feel especially impactful on a smaller scale and help employees feel bought-in in a way that pushes people to work in an innovative and company-centric manner. It just requires a little more creativity to get there.
The most classic way smaller firms can provide bonuses without obliterating cash funds is to spread that bonus out over a term. For example, a hypothetical $1,000 bonus could be paid out with $500 up front and an extra $100 per paycheck for a set number of terms.
This kind of partially deferred bonus is beneficial for both talent and the employer, as the employee receives both an impactful short-term bonus and, essentially, a short-term raise, while the employer avoids depleting their cash reserves, especially in a scenario where an entire team or department is being bonused. Practices such as these can help small businesses close the cash gap and offer competitive, rewarding bonuses.
Cash bonusing is also ideal for start-up owners who prefer to maintain as much of their equity as possible. A regular, achievable cash bonus framework empowers employees to see real returns faster than in a vesting scenario, making a bonus-powered business more appealing to talent compared to similar organizations that are asking potential employees to take a five-year bet.
Anchoring a Bonus Strategy
Here’s the thing with cash bonuses: they have to be fair, transparent, and grounded in carefully measured KPIs. One of the biggest misconceptions out there is that bonuses come from a black bag of discretionary money that leaders can use to reward their favorites. Building a culture in which cash bonuses are a valuable incentive and motivator for everyone means obliterating that preconception and presenting a clearly articulated approach to bonuses that gives employees brass rings to reach for and shows them that hard work is truly rewarded.
For each asset within the organization, bonus opportunities should be tied directly to expectations laid out in their individual job description and their performance on on-going projects and initiatives. That means strengthening the connection between leadership, accounting, payroll, and HR to ensure that there’s a clear vision for each position in the company and an understanding of what adequate and outstanding performance look like in each scenario.
Ideally, employees should sign on knowing what kind of bonuses they can qualify for from the outset and what kind of data gathering and analysis leaders will conduct in order to determine their eligibility. For organizations unveiling a new bonus strategy, it’s absolutely crucial that existing employees understand which aspects of their work and KPIs are tied to bonuses and what they can do to ensure they qualify. Regular check-ins from supervisors and leaders can reinforce the company-wide culture of working toward bonuses and keep individual team members bought into the system.
When rolled out correctly, a cash bonus incentive system can give long-time talent the push they need to make it to the next level while attracting new potential superstars. On the other hand, if rollout is fumbled or articulated poorly, a seemingly unclear or unfair system can actually hurt workplace culture.
Scheduling a Bonus Strategy
Given that clarity, transparency, and fairness are so crucial to using a cash bonus system as an employee motivator and attraction/retention tool, organizations must articulate from the outset how they will schedule bonuses. Traditionally, bonuses are given on a yearly, quarterly, or project-based schedule. Let’s quickly look at each of those approaches to discuss how they differ:
Yearly:
Advantages: Yearly cash bonuses have been traditional in the workplace for several centuries. Businesses can plan financially to bonus everybody at once. Workers get a large lump sum.
Disadvantages: A year is a long term, which means assessment is complex for leadership and bonuses are fewer and further between for workers.
Quarterly:
Advantages: Business planning and accounting is typically conducted in quarters. Quarterly business metrics can most directly inform bonus decisions. Quarterly check-ins with employees regarding goals and company culture feel appropriate and unobtrusive.
Disadvantages: Assessing goals and tracking KPIs for all workers on a quarterly basis is a job unto itself, potentially for more than one person depending on company size.
Project/Milestone-based:
Advantages: Milestone-based bonuses reward assets directly for getting work done. They provide a timely reward and a pat on the back.
Disadvantages: It’s easier to quantify and articulate bonus qualifications for some positions (e.g. project manager, sales professional, etc.) than others (e.g. graphic designer, service technician, etc.). Mindful planning must be employed to ensure fairness in terms of assignments.
Individual vs. Group bonuses:
One theme that we see across all these bonus scheduling strategies is that businesses must be mindful about whether they want to create an approach in which a large number of employees are potentially getting bonused around the same time or try to stagger assessments to provide massive cash pay-outs in a small time frame.
For smaller businesses and startups, spreading those payments out is preferable in most situations. That means staggering assessment quarters across the workforce, potentially deferring bonus payments out over a longer term, and calibrating bonus goals to be attainable but adequately lofty. All those concerns again speak to the necessity of extensive planning (both in terms of articulation and financial allocations) in the months before rollout.
Key Takeaways:
● Cash bonuses are especially relevant and attractive in a climate where many professionals are wrestling with debt or trying to secure retirement.
● Cash bonuses both attract new talent and provide current assets with the push they need to take their work to the next level.
● Businesses of any size can offer cash bonuses if they commit to a program and get creative. In fact, cash bonusing can be a good way for start-ups and smaller companies to protect equity.
● In order to work as employee motivators and attractors, bonus programs must be grounded in practices, schedules, and KPIs that are clearly codified and administered as part of a transparent system.
Are you interested in learning more about how to effectively leverage cash bonuses at your business? Don’t miss our upcoming webinar:
Everything You Need To Know About Executive Compensation
