News

Handling Bonus Season: Frustrated Employees, Nervous Managers

December 4, 2009 | Tom McMullen, Hay Group

Year-end bonus season is the time when managers deliver very good news or disappointing news to their employees. Delivering good news is easy; delivering disappointing news is not. Managers experience this firsthand as they meet with their employees to recount the past year’s performance and its impact on salary increases and bonuses.

Managers are increasingly concerned that their best and brightest employees might pack their bags in search of greener pastures if they receive smaller bonus checks than they think they’ve earned. And in economically challenging times, managers struggle with how to explain to employees that their hard work will not result in a salary increase or a bonus.

Hay Group research shows that employee engagement and retention of top talent are the top two human capital concerns of management in U.S. organizations.

Top Human Capital Concerns of Management
	Extremely Concerned	Somewhat Concerned
Maintaining employee engagement	47%	42%
Retaining top talent	42%	49%
Recruiting top talent	32%	53%
Maintaining/affording competitive pay	29%	54%
Career development/training	19%	62%
Source: Hay Group Reward in a Downturn Research (2009).

The counter argument of many managers—that people should feel lucky just to have a job—is difficult to rebut in a tough economic environment. But managers need to be mindful that their top talent might bolt when the economy turns around. Why? It might seem surprising, but it’s generally not about pay.

Hay Group’s research suggests that compensation is not even among the top five reasons why employees are prone to taking calls from headhunters and explore career options. Instead, workers begin a job search because of the desire for meaningful work, to use their skills and abilities, to pursue career advancement opportunities and to find a clear sense of organizational direction. Managers should concentrate their efforts on increasing employee engagement and developing systems that support their employees’ success better.

Core Retention Drivers
	Total Percent Satisfied
Satisfaction with:	Employees planning to stay for more than two years	Employees planning to leave in less than two years	Gap
Use of my skills and abilities	83%	49%	34%
Ability of top management	74%	41%	33%
Company sense of direction	57%	27%	30%
Advancement opportunities	50%	22%	28%
Opportunity to learn new skills	66%	38%	28%
Coaching and counseling from supervisor	54%	26%	28%
Pay	51%	25%	26%
Training	54%	36%	18%
Source: Hay Group Employee Opinion Database (2009).

Many employees feel they’ve been put through the ringer during trying times. That presents a challenge to managers who must rely on the discretionary effort of their employees to do more with less and to go the extra mile on weary legs.

Emphasizing Total Rewards

To increase engagement during bonus season, organizations and their managers should use a "total rewards" mind-set in their discussions with employees. Managers are likely to strike out if they focus only on base salary increases and incentive payments (or lack thereof). Managers need to broaden the dialogue to a discussion around the entire total rewards package employees receive, which includes career development (and career compensation), job enrichment, recognition and meaningful performance development feedback in addition to base pay, bonuses and benefits.

Hay Group research shows that organizations understand the need to focus on total rewards but have not done a great job at communicating this to employees.

Total Rewards Focus: Putting the organization's mouth where its money is.
	Organizations indicating this is a current focus	Organizations indicating they need to make this a greater focus in the future
Employees appreciate that the reward program consists of total rewards	35%	63%
Leaders regularly sustain reward and performance communications	33%	64%
Employees are provided with individualized total reward statements	35%	48%
Managers effectively communicate total rewards to employees	15%	67%
Source: Hay Group Reward Next Practices Research (2009).

Ideally, total rewards discussions should be held throughout the year, not just at bonus or salary increase time. Managers should see each day as an opportunity to provide employees with meaningful feedback and coaching and should shy away from the once-a-year performance appraisal discussion. The engagement and job performance of employees (and their managers) is improved significantly when performance feedback is a continuous conversation rather than a discrete event.

Six Steps to Improve Engagement

Below are six practical steps that managers can take to improve employee engagement:

Help employees to view their pay as more than base salary increases and bonuses. Total rewards include recognition, meaningful work and career opportunities.
Understand what truly engages and motivates employees. It is often much more than money. Be mindful that different people value different rewards.
Communicate the link between performance and rewards clearly. Clearly explain the reasons for the reward and the amount of the reward.
Ensure that performance assessments and total rewards differentiate among employees appropriately. Distinguish among the best, solid and weakest performers.
Assess and improve the organization’s work climate. Train managers how to motivate employees.
Use feedback as a gift. Make it meaningful. Give it often.

Tough times require management to think creatively about rewarding and retaining employees. Organizations that carry through with the above approach are far more likely to have engaged employees willing to do what it takes to position the organization for success.

Tom McMullen is vice president of the North American Reward Practice at Hay Group, and is based in Chicago.