Balance bonus with other rewards

You've just been handed a $2,000-year-end bonus by your boss. Since your monthly salary is only $1,000, you are thrilled, right? Well, maybe not. Let's say that last year your boss gave you $3,000 and in addition you learn that everyone else on your floor this year got the same $2,000-bonus you did, including that guy who has only been with the company nine months and the woman who calls in sick nearly every other Friday.

Now let's change the scenario a bit. Same boss, same company. This time you get only a $1,800 as bonus. But that's $600 more than you got last year and now you learn your boss has distributed bonuses commensurate with employees' work output. It turns out that your bonus is larger than anyone else's in your department and the boss has actually given you two checks - one of $1,500 as bonus and the second of $300 as cash gift for "hard work" with a personal hand-written note of appreciation.

Most of us probably recognize right away that although the hypothetical "you" in our first example actually got more money from the boss, "you" number 2 is likely to be happier with the bonus situation. Psychology suggests a couple of reasons why.

Our gratitude for a pleasing situation, such as getting a year-end bonus, depends to a large extent upon our prior experiences. If we have received larger bonuses in the past, we are likely to be somewhat miffed if our year-end bonus doesn't hit the same mark. Once established as a work expectation, the bonus is no longer considered so much a gift, as something we are owed. When that "debt" leaves us dry, we are disappointed.

Consider an analogous situation in the United States where tipping in restaurants is the norm. Fifteen percent of the bill is considered an average tip, whereas some people will leave tips of 20 percent or more. While few restaurants require patrons to leave a tip, you can expect surly stares from waiters and waitresses if you leave them a tip of 10 percent or less. In other words, although you are giving someone money to which he or she is not entitled, that person is likely to be upset with you even if he/she has done only an average job of serving you, because your tip failed to meet his/her expectations.

Another factor that influences our pleasure with the bonus is what amount of money our colleagues receive. We measure our own satisfaction to a certain extent by comparing our situation with others around us. So, for example, the NBA player who gets a $5-million signing bonus may be disappointed when he learns that his teammate got $10 million.

If our year-end bonus is the same as everyone else's - the shirker who spends most of his days playing online video games, for example - we are likely to feel under-appreciated.

Psychologically, therefore, the happiness we experience at receiving a year-end bonus will be influenced by our past experiences and our comparison to others around us.

The other side of the coin is how best should management treat year-end bonuses. Obviously, those bonuses have become an expectation in many industries but management needs to make clear to employees that bonuses are rewards for jobs done well, not free gifts to which everyone is entitled.

In that vein, one of the drawbacks of year-end bonuses is that it is difficult to tie them in with performance. An elementary principle of psychology is reinforcement, in which a person is rewarded for doing something well and thereby is encouraged to do it again. The problem is that reinforcement needs to be fairly contemporaneous with an act to be effective. So, if an employee worked lots of overtime on an important project in June without otherwise being compensated and the boss wants to acknowledge the employee's work and encourage those types of efforts, it is better if the bonus/reinforcement (and it doesn't have to be just cash) is delivered in June or July.

Workers and management both should view bonuses from a larger perspective. Bonuses are meant to reward good work, encourage future efforts, build company loyalty and improve the overall esprit de corps. If a company has had a down year though, or if the entire industry is facing problems, the management should make clear why bonuses are small or absent. If, on the other hand, times are good, workers should be rewarded accordingly.

Finally, companies should consider replacing single year-end bonuses with less substantial intermittent performance rewards. The performance rewards would be spread out over the year and therefore be more closely tied-in with specific things employees do that help the company. In that way, employees would equate their hard work with the compensation they receive for doing it.

The author is an adjunct professor of law in Temple University/Tsinghua University LLM program and teaches college psychology at TOPU in Beijing.

(China Daily 01/19/2012 page9)