Are large bonuses good for employees?

Late last year, Gina Rinehart’s company gave 10 lucky workers at Roy Hill a $100,000 bonus.

Located in Newman, Western Australia, the mine is owned by Hancock Prospecting, which is run by Rinehart, its executive chairman.

Worth an estimated $34 billion, Rinehart can afford to be generous — but do large bonuses entice staff to stay? Are they sustainable year on year?

What impact do they have on staff who don’t get a bonus?

“Bonuses that are rewarded fairly and transparently can be extremely motivational — and the opposite is also the case,” Mark Smith, group managing director, from people2people Recruitment, said.

“Arbitrarily awarded bonuses can foster a culture of resentment and individualism.”

For sales teams, Smith said he would always encourage organisations to use commission calculations that are definitive, rather than a bonus that could be seen as discretionary.

“Bonuses should be part of a broader remuneration and rewards strategy for organisations. For some staff, bonuses will be a very strong and important motivator whilst others may value flexibility, culture, location or a myriad of other factors.

“Understanding each of your team’s motivations is an important management task that will inform your organisation on the mix of remuneration and benefits that should be on offer.”

Mercedes-Benz will be granting employees a record bonus of €7,300 following a stellar year for the automotive brand.

Specific needs, goals

Most employers have C-suite executives on some sort of bonus structure, which is written into their contract and stated in very specific terms as to what they have to do to earn those bonuses. It can range from 5 to 50% of someone’s salary but it is subject to tax, so employers put in mechanisms to safeguard themselves and ensure obligations are clearly stated and outcomes achievable, according to Smith.

“Just like life, the timing of events can imply motivations,” he said. “So bonus payments should be related to the completion of a project, achieving milestones or be part of an annual cycle of remuneration.”

In Asia, container shipping company Evergreen Marine extended year-end bonuses worth up to 52 months’ pay.

Ultimately, the decision of when to offer large bonuses should be based on the specific needs and goals of the company, “as well as the performance and contribution of the employees,” said Smith.

There are common methods of bonus calculations such as:

• performance-based bonuses: bonuses that are based on an employee's individual performance, such as meeting or exceeding sales targets or achieving a specific goal.
• team-based bonuses: bonuses that are distributed among a team of employees based on the team's overall performance and contributions.
• profit-sharing bonuses: bonuses that are distributed among employees based on the company's overall profitability.
• commission-based bonuses: bonuses that are based on the employee's sales or revenue generated.

Can retention bonuses be bad?

“Retention bonuses aren't a good tactic across the board,” Dmitrii Kustov, marketing director at RegexSeo, said.

However, they often work well during transitional periods in business, such as changes in scale or mergers and acquisitions, he said, “and, of course, retention bonuses for senior employees with special skills, knowledge, or experience to prevent a loss that could hurt the business.”

But overall, these kinds of bonuses can harm employees and their company, he said.

“For one thing, employees may view retention as a last resort to save a sinking ship. After all, employers had the opportunity to reward employees long before the retention bonus came into play.

“[And while] retention payments can prevent some employees from leaving when a business or company has an ongoing problem that increases employee turnover… [they] can only delay the inevitable because the source of the problem is still present.”

Instead, the best strategy is to give these incentive bonuses while working to address the high turnover rate, “which is probably due to employees not feeling recognized or supported by their employers,” said Kustov.

Other incentives

Employers do have an array of other incentives that they can offer staff outside of money such as work flexibility, training and/or university course payment of fees, holidays, extra paid leave, and even social activities.

A People2People Recruitment survey in 2022 revealed that the top five common employers benefits offered along with employee desires revealed the following list.

1. Ability to work remotely (73%)
2. Flexible working hours (73%)
3. Career development training (68%)
4. Bonuses (62%)
5. Company paid training (58%)