Role of Bonuses in Rewards Management

How Bonuses are Structured

If you are an employee in a corporation or are aspiring to join one after your graduation, one of the key factors that would determine whether you join a particular organization or not is the financial aspect. The salary and the bonuses that you get as part of your package determine largely your choice of a job.

In other words, apart from the non-monetary rewards like job satisfaction and fulfillment, the monetary incentives like salary and bonuses play a huge role in determining your choice of a job. In this respect, while salary and its role in rewards management has been extensively discussed earlier, it is time to look at how the mid year and the annual bonuses are parceled out to employees in corporations.

For instance, in many companies it is the practice to have bonuses pegged to the basic salary and then throw in added incentives like team performance linked bonus, group performance linked bonus, and organization performance linked bonus.

In other words, apart from the bonus that you get for your individual performance, you also get a bonus for the team and company performance. The rationale behind this is that you would be motivated to be a better team player and a better organizational employee.

Bonuses in the Banking Sector

For those aspiring to join the banking sector and especially investment banks, the bonuses in this sector are usually 100 to 200 percent the annual pay.

Indeed, the huge bonuses are what attract the creme-de-la-creme to join investment banks, as the annual bonuses would translate into the investment bankers earning obscene amounts of money. Of course, the rationale behind such large bonuses is that investment bankers and their performance matters a lot than in other sectors as the bankers can make the difference between success and failure in a multimillion-dollar deal.

While in recent months there has been a clamor over such large bonuses for bankers, Wall Street and pretty much all over the world, the bankers are still taking home large bonuses. This is the main reason why many management graduates dream of being in investment banks.

The other reason why such large bonuses prevail in the banking sector is that in most cases, the bankers handle sensitive and complex deals apart from running the risk of being fired if the deals go awry. Hence, the performance or otherwise is reflected in the bonuses that get every year.

Bonuses in the IT and Services Sector

In other sectors like IT and Services, the bonuses are crucial but not as important as the banking sector. This is because these sectors are staffed in large numbers where the organization as a whole has to do better than individual employees and hence, the rewards system is geared towards incentivizing the individual performance along with the holistic approach to organizational performance. Of course, this is not to say that the IT and services sector treats bonuses as an afterthought.

Indeed, as one goes up in the hierarchy, the bonuses become bigger and more important since as in the case of bankers, the senior management is expected to deliver according to their vision, and business acumen along with hard work and commitment. However, at the entry and the middle level, the bonuses are flat as the nature of the business, which are volumes driven at the levels means that the salary is more important than bonuses.

Apart from this, in traditional manufacturing companies, it is the norm to have bonuses paid out at festival times and seasonal bonuses and hence, it is the case that bonuses matter in this sector as well.

Closing Thoughts

Finally, bonuses must be paid out in a way that would motivate the employees and make them feel that they are getting something “extra” and not merely their salary.

In other words, who does not like being rewarded and this must be the guiding spirit when bonuses are decided. If this is missing, then the employees feel let down and this leads to a general lowering of performance standards. This must be avoided at all costs by the organizations.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.