A Three Step Recipe for Bonuses

Bonuses are something I often get questions about. By bonuses, we mean a reward in addition to your regular salary. Not overtime or commission. This may be money, extra paid time off, or other perks. They don’t need to be a surprise, but they do work much better if they are. However, it does need to be tied to something else.

Many of the appraisal business owners who ask me about bonuses want to give out a bonus in the form of shares in the company, like a 1% or 2% share. I encourage everyone to rethink that. In most cases, a bonus will not have the exact effect on your employees as you think it should. I emphasize that for bonuses related to ownership in the company. This is because, most of the time, your employees have a different mindset than you do. While it’s important to realize your team is important, your employees have different motivations than you do. I appreciate my employees, but no one has put more blood, sweat, or tears into my appraisal company than I have.

I understand wanting to give an employee you appreciate some ownership of the company. It’s noble, generous, and you love and appreciate your employees and what they do, so you want to give back to them in the way that motivates you, which is ownership and growth in the appraisal company. Less altruistically, you may hope that by giving an employee ownership in the company, it will make them look at the company differently and put even more work into it so that you all can make more money.

Trust me, this will not change their motivation the vast majority of the time. The mindset of an employee and an owner is just too different. People feel comfortable in certain roles. You feel comfortable in the ownership role, and employees feel comfortable in an employee role.

As for bonuses, I am a big believer in rewarding people for their efforts. There is a three-step recipe for deciding if a bonus should be given:

1. Give a bonus that is motivating. Find out what is motivating to your employees. And no, money is usually not that huge of a motivator. It won’t make employees work harder. A lot of things besides money can motivate employees. For example, healthcare, paid or unpaid time off, flexibility, working from home, and more. See what your employees want.

2. Bonuses need to be directly related to production. Only give out bonuses when they are well-deserved. They should be between you and the employee who has earned them.

3. Specific bonuses need to be temporary. After a while, they become the norm. At some point, they should expire. If they last too long, at some point they cease to be motivating.
Bonuses are great for showing appreciation to your employees, but they need to follow some guidelines to truly have the impact that you want on your employees and your business.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode #607.

2 Comments on “A Three Step Recipe for Bonuses”

  1. Pingback: A Three Step Recipe for Bonuses - Appraisal Buzz

  2. Interesting. I used to work for a company with thousands of employees that shared half the profits with the employees. They were divided up by seniority. In that company, the employees would receive pretty large bonuses each year. There was an incredible culture that had been built. I remember employees saying things like, “Don’t leave the light on in the lunch room, that’s our bonus.” I now own my own small twelve person appraisal company and I cannot afford to give my employees half the company profits, but I would love to. I simply provide a Christmas bonus that works out to what I think I can afford (about $1k to $5k per employee) and how hard each employee works. I have an incredibly motivated staff today and have experienced very little turn over, far less than the company I used to work for that shared 50% but there is a big difference in company size.

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