Bonus vs. Salary Increase

You’ve had a great year.  Productivity is high and morale is on the upswing.  The strategy you stressed over 12 months ago actually worked, and you’re seeing a major difference in your organization’s bottom line. And now it’s annual review time, and you want to be just as strategic in how you can keep your organization riding this wave of success.  Two options for consideration:  salary increase or bonus.  Which is better?

The Bonus

A certain crowd-pleaser, the employee bonus, is always a welcomed reward.  And, nothing says “company success” like an employee parking lot filled with newly leased BMWs and Audis.  Ideally suited for highlighting the accomplishments of a specifically targeted goal, the lump sum cash bonus has multiple advantages. With a bonus, you have tied a very specific dollar figure to a very specific set of behaviors and their resulting outcome.  You have created results-oriented employees who are fully vested in the team’s success.  And as quickly as the check is deposited, your employees are looking for the next challenge to tackle to earn, yet, another win for the company and for their bank account.

The down-side?  When the bonus becomes expected, the work one puts in to earn it sometimes goes by the wayside.  Get ahead of that by very specifically outlining what it takes to earn a bonus with measurable tools that benefit the bottom line.  This way, employees tie their actions to measurable, success-oriented results.

The Salary-Increase

Now, it gets serious.  Although typically not as large as the lump sum bonus, overtime pay and salary increases are certainly more valuable to the employee.  An increase in salary tends to give the employee a sense of belonging and appreciation in an organization, as well as, what value they, as an employee, bring to the table. If employee retention is a key value for your organization, then increasing base salaries may be your best option.  However,  would it be sustainable?  That’s where you really need to evaluate your organization’s position and its continued, projected growth.  Sure, increased salaries would be great;  yet, managing during a potential downturn could prove challenging.  Whether you are an owner, manager or employee – no one wants to deal with having to eliminate jobs.

Whether you reward exemplary employee service with bonuses or salaries, realize this one fact:

Recognizing where your success lies – in the work of your team – is what effective management is all about.  Therefore, whichever route you take with rewarding success, do so with the appreciation your employees deserve – and don’t forget to say, “Thank you!”

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