Sage: How to distinguish between bonuses and recognition and ensure both are valued

Guest blog authored by Spencer Hughes, Reward Analyst at Innecto Reward Consulting, part of the Personal Group family.

Celebrating 20 years in business this year, Innecto is a pay and reward consultancy that provides advice, support and practical help to solve any challenge relating to attracting, retaining and motivating people. 

There is a distinct difference between a one-off reward and the steady drip feed of recognition. Each carries different incentives, drives different behaviours and comes into its own at different times. Here we examine the key differences and how you can reach the holy grail of having them work together in perfect harmony.

In this scenario reward means bonus, so how do we distinguish that? A bonus doesn’t have to be complex but there is often a layer of complexity and structure. By its nature, a bonus is usually transactional: achieve X and be rewarded with Y. From the outset the rules of that ‘game’ should be made clear and often with a bonus there is also a defined timeframe, usual annual although some can be more incremental.

Although driven by individual performance, bonuses are usually related to company performance too. By definition, a bonus is backward-looking in that it rewards results you’ve already achieved. As a result, research suggests that it often gives an employee a short term hit of pleasure, mainly financial, but only a small amount of long-term motivational incentive.

If we look at recognition, it can come in many forms, and can be made as individual or personal as a company wants. Whereas a bonus requires forethought, recognition can be as straightforward as a ‘thank you’ and requires a very different kind of framework, typically less rigid and complex and more reactive.

In terms of who drives recognition, it can be either manager-led or peer-led and is a good way to highlight behaviour immediately. Whereas a bonus gives delayed gratification for work that might be long since forgotten, recognition’s impact comes from its immediacy, in the moment. So how can you maximise their respective value?

Bonus: Pros and cons

A badly managed bonus can turn into an entitled expectation of a once-a-year transaction which an employee has little drive to push towards. In the worst-case scenario, an employee has the perception that their work has gone unnoticed all year, until a faceless payment hits their account in December. For some, the fact that it scales with salary and happens is incentive enough as they progress in a company, but the expectation of receiving a bonus can hinder real motivation.

If executed properly, a bonus incentive should be clear both in terms of how it can be achieved and in understanding how you’re tracking at any one time in your progress against it. With the correct framework it can be an ever-present motivator, tying each small achievement to the bigger picture. I worked with multiple clients last year on bonus schemes geared solely towards that balloon payment in December which were doing very little to drive their culture. By making their schemes more engaging and year-long, we pushed people towards behavioural change by attaching those habits and behaviour traits to the metrics they needed to achieve. Those companies are now deriving greater value from their bonus schemes.

Making recognition pay

To really make recognition pay it needs to be personal and tailored to the individual: their character, their place in the business, likes and dislikes. If a project goes well and a member of staff is singled out for good feedback in the right way, the immediacy of that praise can be very powerful.

Unlike the bonus scheme, recognition doesn’t have to be tied to company performance. So, if the company as a whole hasn't reached its bonus threshold, there may be nothing coming to you in December - even as a highflyer - but profit targets don’t have to impact how you’re singled out in recognition. Furthermore, by consistently recognising staff in the moment, you motivate them more, which could drive them to hit the bonus metrics they may otherwise ignore.

Recognition can also be relatively cheap to achieve. Whereas a bonus pot can be quite big and scary, that’s not the case with a recognition scheme. We're talking with increasing numbers of clients who are setting aside a separate budget for this, either on a company-wide basis, departmental, by team or even by a staff member where peer-to-peer nominations are really taking off.

The real magic can happen when these two motivating assets – your recognition scheme and your bonus incentive – are aligned and working together in harness. When that happens, your recognition will drive contagious behaviours through positive, immediate affirmation and consistency of output through greater engagement, which leads to a more joined-up approach and appreciation of the end-of-year bonus and what it stands for. And that can work wonders for morale, retention and recruitment.

You may want to also read our recent blog on "Keeping the tax man happy".  For more information or help with recognition please speak to your Account Manager on welcome@sageemployeebenefits.co.uk