Get a better idea of ad hoc bonuses

Employee Benefits - Motivation supplement cover September 2007Ad hoc bonus schemes that reward staff for ideas or business solutions are not widespread, but if employers want to implement one they must think about scheme design, says Debbie Lovewell.

We’ve all encountered or heard of managers who, faced with the prospect of motivating a team to complete a project on time, promise to take their staff out for a drink or meal once the worst is over.

Some employers, however, have gone a step further by offering employees one-off cash bonuses or incentives if they are able to come up with a solution to a particular business problem or meet a set of new targets. For example, employees of the BBC’s political news team were reportedly offered £100 cash bonuses last November in return for exclusive new angles on the recent cash-for-peerages controversy. After reports of the incentive appeared in London’s Evening Standard newspaper, however, the offer was quickly withdrawn with the BBC claiming that it had simply been made in jest by a manager. However, the BBC does offer a formal incentive scheme that allows managers to reward staff with vouchers if they come up with good ideas.

Although ad hoc bonus schemes that reward staff for coming up with ideas or business solutions are not currently widely used by employers, Peter Christie, director-reward at Hay Group, says: “There’s a certain attractiveness to the idea as one of the key issues employers are grappling with is how to stimulate innovation, ideas and contributions from anywhere within the organisation.”

Others, however, believe that such incentive schemes do not provide the most effective use of resources. Stephen Brooks, a partner in PA Consulting’s People and Organisational Change Practice, explains: “It’s got a lot of holes in it as an idea. It smacks of desperation to me. Surely, if you’ve got a particular issue, you dedicate resources to solving it.”

Ideas with legs
Employers that do wish to implement such a scheme should bear several key points in mind when designing the plan. They need to first identify what the bonus should be awarded for and determine the amount of cash available. To avoid creating any ill feeling among staff, employers should ensure that schemes are transparent by clearly stipulating how rewards are directly linked to performance. Carol Dempsey, a partner at PricewaterhouseCoopers, says: “It’s something that’s worth looking at, but needs to be managed properly. You don’t always necessarily see the linkage to payment [so] it’s about making sure the award is commensurate with [performance].”

Before any awards are made, employers should also ensure that the ideas they are paying for have legs. It will only demotivate the workforce if each employee receives the same payment regardless of how effective their idea is compared to those of others. If employers wish to reward staff for putting forward potential ideas, therefore, they may wish to consider using a tiered system of incentives with larger prizes for those employees whose ideas are ultimately taken forward and implemented.

“[Employers] have got to be clear in dictating the rules of the programme and what is expected. People need to understand what the programme is trying to achieve. It’s about celebrating success within reason. It’s about being creative around the way you recognise employees’ contributions,” says Christie.

In many cases, the amount that employers choose to award may be minimal. Yet this can still have the same motivational effect on employees as large payouts, provided the scheme is tailored to appeal to their imagination. Steve Watson, managing director of RewardWorks, says: “The incentive [in it] is that it is really a game. I think that does work provided the game on offer is inspirational. It’s got to catch [employees’] attention.”

On-the-spot recognition
One of the advantages of using ad hoc bonus schemes for particular projects is the ability to offer on-the-spot recognition for employees in front of their peers. “You’ve got to put the power to make the awards into the hands of front-line managers and encourage them to use these. The power of these programmes is in the immediacy of the recognition so you’ve got to encourage managers to make use of [them],” says Christie.

When allocating reward payments, however, employers should be aware that this can cause dissatisfaction, or even demotivation, among those who do not receive awards. Dempsey explains that an employee who puts in an average performance throughout the year, for example, may be rewarded for coming up with one good idea, while those workers who put in a consistently high effort but do not receive a bonus in this instance can be left feeling undervalued. Such circumstances can create bad feeling among employees.

Brooks agrees: “The problem is that employees who receive awards are the most visible. [Employers] are rewarding the extraordinary while those who put in a sustained effort go unrewarded,” he says.

If schemes are managed properly, however, Christie believes that employers can see this problem off before it occurs. “With properly-trained managers, a good range of people should receive these awards,” he explains.

Employers may also find that schemes are more effective if they are part of a wider motivation and incentive strategy, rather than simply consisting of one-off payments.

Christie advocates looking at such plans in terms of an organisation’s total reward strategy. And employers that do launch such a scheme, in whatever context, should regularly revisit it to ensure that it remains fresh and at the front of employees’ minds. “It has to be set into a broader culture. [Employers should consider] what sort of environment the leadership of the organisation are trying to create and what sort of role monetary rewards play in that. These programmes do have a shelf life so tend to be launched in a fanfare and then run out of steam,” he explains.

Managing staff expectations
If used as a series of occasional schemes as part of an organisation’s wider reward strategy, employers should ensure that staff do not come to expect to receive bonuses or additional incentives every time they are asked for input on specific projects, or are required to put in a little extra effort. “When do you stop? You may get to the situation where people expect to be paid extra for turning up. People end up working out how to [play] these schemes,” says Brooks.

As long as employers remain aware of the drawbacks of ad hoc bonus schemes and take care to manage employees’ expectations, these can be a useful addition to an organisation’s motivation strategy. “[A scheme] like this can sometimes be a bit of fun. It strikes me as something that can be used sparingly, and can be used motivationally [from time to time], as opposed to things that can be used motivationally a lot of the time,” concludes Dempsey†

Ad hoc bonus schemes

  • Employers can use one-off, ad hoc bonus payments to motivate staff to generate ideas for a particular project or business issue, however, these schemes are not widespread.†
  • Payments do not need to be large, however, employers should ensure that they are distributed fairly in order to avoid employees becoming demotivated.†
  • Schemes should be managed so staff know what is expected of them and do not come to expect to be rewarded every time they are asked to go the extra mile.†
  • Such bonus schemes should form part of an organisation’s culture and reward strategy.†
  • Provided incentives are small, employees should not find that they are liable for large tax payments.

Case study: BBC
The BBC reportedly offered journalists in its political news team a one-off bonus of £100 if they came up with an exclusive new angle on the cash-for-honours controversy. However, after details of the incentive were published in London’s Evening Standard newspaper in November, the bonus offer was withdrawn.†

Roger Fairhead, then head of reward at the BBC, explained that it was not intended as a serious incentive scheme. “Someone in the news room joked and said ‘I’ll give you £100 if you can get an exclusive [on that story]’. It wasn’t a BBC scheme. It was simply the news manager making a quip,” he says.

The broadcaster, in fact, operates a formal incentive scheme, titled ‘Celebrating your success’, which is intended to allow managers to reward staff with vouchers if they come up with good ideas or go the extra mile in their work. “It’s at the discretion of managers and subject to the budget they have [available],” Fairhead explains.†

In order to make the reward memorable for staff, the scheme is flexible so the vouchers can be tailored to suit employees’ interests. “The managers that use this scheme a lot value it highly,” he adds.

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