Why bonuses don't improve employee performance

How should you reward employees for their performance? Kris Duggan, CEO of Redwood, Calif.-based Betterworks, has a few suggestions — and they don't involve monetary bonuses, according to Forbes.

Mr. Duggan is done with the Management by Objectives approach. The technique, which was first utilized by Peter Drucker in The Practice of Management, entails managers working with employees to set goals. When the employees complete said goals, they receive a monetary bonus.

The concept seemed innovative when Mr. Drucker initially introduced it in 1954, but Mr. Duggan believes there are two problems with the MBO approach and handing out monetary bonuses:

1. People have altered their expectations regarding work. Years ago, employees were primarily concerned with financial incentives. Now, employees are more interested in finding meaning and purpose in their work.

2. Employees are working differently. Nowadays, people are collaborating more on projects, thus making it harder to hand out bonuses for individual performance metrics.

Instead of the MBO technique, Mr. Duggan proposes four ideas to consider if your company is looking to improve performance:

  • Think about employees' personal aims and objectives. Each employee cares about something different. It'll take more understanding on your part, but getting to know your employees and figuring out how their goals align with your company's will be beneficial in the long run.
  • Seek other ways to motivate employees. Research from Gallup shows that monetary incentives won't make employees stay at a company. In fact, approximately 44 percent of workers claimed they'd consider taking a job with a different organization for a raise of 20 percent or less, according to Gallup.
  • Form opportunities for growth. Give your employees the opportunity to grow and develop. Create ways to coach employees so they don't feel bored in their current positions.
  • Frequently assess employees' progress. Don't nix the annual or quarterly performance reviews, but consider increasing the number of times you sit down with employees to discuss their progress. Doing so will keep them on track and encouraged.

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