Bonus better than Merit Increase

BKate

I just saw an article reporting on a study that says bonuses increase performance 10-fold over the traditional annual merit increase. The article points out that in this day of small merit increases, giving the same amount in a lump-sum bonus tied closely to performance is a better motivator.

Does anyone have experience with using bonuses rather than bumping base pay? If it increases performance and morale, and keeps fixed costs lower because base salaries haven't increased, seems like it might be a good idea.

KLeede

We increased the use of incentives over annual pay increases a few years ago, and are still using a combination – smaller merit and more at-risk increases.  Our bonuses are tied to factors like budget compliance, innovation (new projects that measurable value), and other measurements that are set out in annual performance appraisals.  The combination seems to work well, especially in the years when bonuses were negatively affected by overall company performance.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Joy1

You might also want to read the conversation string in this forum center (Compensation) entitled "Top of Pay Grade" - it has some feedback on using bonuses and their effectiveness. Good luck!