Bonuses - friend or foe of productivity?

It’s as regular as clockwork. This time of year means one just thing to many –bonus season. Data finds the average UK bonus for 2024 was £2,242, although when broken down by occupation it can be significantly higher for some – reaching £7,878 for corporate managers and directors, and that’s not including what the real big-hitters in the world of corporate finance can expect.

And yet, ‘expectation’ is arguably just the problem, because just like clockwork, every year a heated debate resurfaces about whether bonuses actually ‘work’ from a retention point of view, whether they work from an employee engagement point of view, a fairness point of view, and last but not least, from a productivity point of view. This latter point is especially when bonuses have become an annual event, but UK productivity has actually been falling. Surely, if HRDs are going to continue to give cash rewards, it should it at least be for something in return?

Bonuses aren’t always linked to productivity

It might shock some to learn that according to the CIPDs ‘Pay, Performance and Transparency’ report (2024), 39% of employers do not link either pay or bonuses to an assessment of their performance (rising to 73% in the voluntary sector and 64% in the public sector). It adds that nearly a quarter (25%) of employers said that doing so would be seen as ‘”too controversial or divisive.” A sizeable 15% of HRDs polled said they didn’t have the systems in place that were robust enough to even support this, while 14% of employers also claimed the link between bonuses and performance couldn’t even be proved. Not exactly a ringing endorsement.

So why should employers continue to pay all this money out – if they can’t specifically say what they’re rewarding, and don’t know if it even has any desired effect?

“The problem for HR practitioners, is that HR can often present quite compelling data that shows bonuses don’t lead to better retention or actually cause post-bonus resignations, but the ability for it to really push for change – especially in sectors like financial services is limited,” argues Alex Hind Co-Founder at benefits provider Heka. “In financial services especially, most of the top leadership have experienced the bonus system themselves, so are resistant to change.” He adds: “The reality is that even in financial services, the money isn’t the main motivator – bonuses seem to serve more as a badge, as an ego or prestige boost.”