The balancing game of bonuses – carrot, stick, chicken or egg?

[Australasian Law Management Journal,Finance & Accounting,General Management,People Management(HR)] August 14, 2019

Law firms continue to use bonus arrangements to reward and provide incentives for employees, but management needs to weigh up the real impact they may or may not have – while remembering that motivating factors can vary from person to person, writes Leonie Green.

I remember many years ago in a meeting with one of my favourite law firms when I asked how it had managed to successfully retain so many of its articled clerks right through to partner level. The partners’ answer struck me as a sound one, and one that told me a lot about the firm.

The response was, in effect, that it was all about different factors for different people. With the firm being aware of this, it then considered how to best provide incentives and engage and motivate its dynamic employee base, all the way through to partner level. At least that’s the way I remember the answer!

This is a great approach when you have a close connection to staff members and can manage incentives on a person by (key) person basis. The larger the firm, the harder this becomes, and therefore the more standard the approach often becomes.

In a related context, the recent ALPMA salary survey provided some interesting insights into what firms are doing with bonuses, benefits and incentives. For example, in 2019, 79 per cent of all law firms surveyed said they would be offering staff performance bonuses (up from 71 per cent the year before). Significantly, 91 per cent of firms with 75 to 149 employees were expecting to provide bonuses in 2019, which was up from only 68 per cent the year before.

Another change worth noting was that 82 per cent of the largest firms who participated in the survey expected to consider non-financial performance to determine employee bonus payments in 2019, up from only 42 per cent in 2018. This is a significant jump, although, interestingly, as a result of the jump it is now more in line with firms of a smaller size, according to the ALPMA survey results.

On the money, or on the nose?

The question, of course, is clear. Do these bonus arrangements, which are becoming more common, result in better outcomes for the firms? Do they result in higher productivity, greater engagement, employee retention and/or higher profitability for the firm? Or are we simply providing bonuses to remain competitive in the market, or to keep up with the Joneses.

It has long been understood that remuneration is a hygiene factor, rather than a motivating factor (as espoused by Frederick Herzberg back in 1968; you can read his classic work in the Harvard Business Review here). Yet we continue to use bonus arrangements to reward and provide incentives.

As a hygiene factor we either get remuneration right, or wrong – it is clean, clear and fair, or it is a little on the nose. If it is on the nose at all, it does not matter how we dress it up; we will have dissatisfied employees. However, once it is on the money (literally and figuratively) then there is no point throwing additional money, or more carrots, to the employee. Research suggests that the extra money will not result in significantly better outcomes for the firm.

What might make a difference is using that money in a different way.  As Herzberg said:

If only a small percentage of the time and money that is now devoted to hygiene, however, were given to job-enrichment efforts, the return in human satisfaction and economic gain would be one of the largest dividends that industry and society have ever reaped through their efforts at better personnel management.

Still not convinced? Take a look at Dan Pink’s TED talk about motivating factors and work performance. The carrot may not be the carrot we think it is, and the bonus that we thought was the chicken may not be producing the egg after all.

Bonus arrangements might remain important ways of encouraging behaviours and performance that are important to our firms and our individual performers, but we need to ensure we are using them effectively, and with as much impact as possible.

It may help to consider the following:

  • Is our remuneration structure clean, clear and fair? (with or without bonus arrangements). If not, where can we improve?
  • Do we know what benefits are important to our employees?
  • What can we offer our employees that matches our brand as a firm, and the needs and interests of our employee base? How individualised can we be?
  • What are we trying to achieve with each benefit?
  • How do we measure the effectiveness of the benefits we offer?

Be brave. Find a way to measure what matters most, whether or not you provide a bonus for it. Find benefits that best match your firm’s needs and its employees’ interests.

Leonie Green is a co-founder and director of the Corvus Group, a workplace and legal advisory firm with more than 20 years of senior legal and HR experience working in Australian and international companies. She practised as an employment and industrial relations lawyer for a number of years prior to moving into management roles in industrial relations, shared services and human resources. She can be contacted via email at leonie@corvusga.com.au.