Benefits and Compensation, HR Management & Compliance

It’s Best to Be Transparent About Bonuses, Says Expert

Perhaps you remember a time when the holiday bonus was a guarantee and when organizations shared their financial success with their workers with surprise bonuses. While that does still occur in some organizations, it is far from ubiquitous.

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I recently discussed the nature of bonuses in U.S. organizations with Tanya Jansen, cofounder of beqom. The discussion specifically seeks to understand the importance of transparency with regard to bonuses.

HR Daily Advisor: How prevalent are bonuses these days? I understand they are not as common as they once were.

Jansen: About two in three companies anticipated giving employees a year-end bonus in 2019. That being said, the prevalence of bonuses varies across employee demographics and industries. Bonuses are also used in different ways, such as employee motivation boosters or spot bonuses to recognize outstanding performance. What’s important, though, is that companies take into account the demographics of their workforce and understand what types of bonuses certain employees find rewarding. For example, 58% of Gen Zs rank nonmonetary elements as the most important workplace benefits, whereas Gen Xers prefer cash rewards.

HR Daily Advisor: Why is transparency as it relates to bonuses important to employees?

Jansen: No one likes to be left in the dark, especially employees when it comes to their compensation. More importantly, employees want transparency around how their bonuses are determined because it helps them understand how their performance directly relates to their pay. If bonuses are not going to be feasible in a company’s compensation plan, management should not be afraid to communicate that.

On the contrary, if a company elects to not keep its workforce informed, it risks the potential of upsetting employees and catching them off guard. For example, if a company typically provides bonuses in December but then changes the process to be at the end of Q1, it risks upsetting employees who may be relying on those bonuses for winter holiday expenses.

HR Daily Advisor: Are there benefits to the employer by being transparent with bonuses?

Jansen: Yes, absolutely. Transparency in the workplace creates a culture of honesty and trust between employees and the organization, allows management to set the tone of the conversation, and reduces the potential for misinformation spreading among employees. Practicing transparency is also beneficial to a company’s hiring and retention efforts, as employees who understand how their performance affects their pay and how their compensation aligns with overall corporate goals are more likely to remain with a company long term.

HR Daily Advisor: What degree of transparency are you talking about? Complete? Partial?

Jansen: Companies should be completely transparent about how they come up with the equation for bonuses. There should be no secrets as to why employees are receiving a certain bonus. To create a culture of fairness, bonuses should be based on key performance indicators like whether an employee met his or her metrics and goals. Not only is this fair, but it also gives employers the opportunity to incentivize bonuses in the future. For example, if an employee met some goals but not all of them, then the employer can use that as an opportunity to communicate to the employee what he or she must do in the future to improve and receive a greater bonus.

HR Daily Advisor: Should companies be transparent about the fact that they can’t share everything? How effective are these approaches?

Jansen: Yes, companies should be transparent about what they can and cannot share with employees, as this can help increase trust and satisfaction among the workforce. This is especially important as we kick off this new decade, when we will see more Baby Boomers retire and Gen Zs make up an increasing share of the workforce. It is pivotal for companies to understand what younger generations expect and adapt their company culture based on employees’ changing expectations. In the case of Gen Zs, they put serious value on transparency. In fact, 61% say they would share their salary information with their colleagues. Therefore, it’s particularly important for companies to practice transparency in order to attract this generation that will soon make up a majority of the workforce.

HR Daily Advisor: What if a company does not have the budget for monetary bonus programs? Wouldn’t being transparent and telling employees this upfront be bad for hiring and retention?

Jansen: Management should not be afraid to communicate if bonuses are not going to be feasible in a company’s compensation plan, but what’s important to note is the reason. For employers that are afraid that communicating this upfront would be bad for hiring and retention, it actually presents an opportunity for them to highlight alternative noncash rewards they are able to offer. While an absence of annual bonuses may come as a surprise to candidates, monetary compensation is not always the ultimate deciding factor on whether to take a job—or leave one. Forty-two percent of Gen Zs rank flexible work hours or remote work options as the most important workplace benefit, ahead of other options, including holiday bonuses.