When Substantial Financial Bonuses Backfire

February 16, 2016
| ByMadison

Recently, The New York Times’ Business Day featured an article discussing the bonus culture on Wall Street. According to a prediction report from Johnson Associates,

Bonuses in the financial industry last year were expected to fall 5-10 percent… Nathaniel Popper, The New York Times.

The article reported that last year was also the first year since 2011 that compensation as a whole was likely to drop. With the reasons behind the reduction in pay ranging from sluggish economic growth to increased competition, the bounce back to the financial bonus glory days does not look probable any time soon.


Wall Street and bonus culture

Wall Street is traditionally synonymous with high salaries and bonuses that are used to attract, retain and motivate employees. People expect to work in the banking industry with the promise that they will receive substantial financial compensation for their efforts.

“Finance is one of the most generously compensated industries in the world.” Nathaniel Popper, The New York Times.

So how does such a blow to financial compensation impact the motivation on Wall Street and, if financial rewards remain low, what can be done to keep motivation high?


When pay goes, people go

When a financial reward is expected and is not forthcoming, people begin to feel they are no longer fairly rewarded for the work they do. When there is no substitute for the anticipated financial reward, and employees are dissatisfied with their work or the working conditions, or they are relying on the reward to accommodate their standard of living, they are prone to looking elsewhere for an organization that will recognize and reward them for their hard work.

“Finance is losing its allure for the most talented young potential recruits, who are seeing better offers from tech companies in Silicon Valley.” Nathaniel Popper, The New York Times.


The purpose of rewards

Expected rewards that do not transpire can result in reductions in employee motivation and commitment. Large financial rewards are nice to have, but they should never become an expected part of an employee’s recognition package unless they are explicitly outlined in an agreement and based on the achievement of predetermined business goals. Otherwise, any bonus, financial or non-financial, should be given as a surprise bonus for desirable behavior and outcomes.


Social recognition can help

By adopting a social recognition solution tailored to your organizational needs, you can soon be recognizing and rewarding your employees in new and stimulating ways, thereby encouraging them to stay with you even when the going gets tough.

Of course, transitioning to a new way of recognizing employees can be a challenge. When people expect generous financial bonuses to be part of their reward package, they need time to adjust to new ways of being recognized for their efforts. But, by creating a solution that is designed with your employees in mind, and that is supported by a full communication package, your reward and recognition culture can take on a new face for the future.


Final thoughts

When people become accustomed to certain rewards, they become disgruntled when they no longer receive them. This can have an adverse effect on recruitment, motivation and retention of employees. Adjusting your reward and recognition strategy to offer less expensive but equally desirable incentives when employees perform well can ensure they feel appreciated and engaged despite variations in the economic climate.

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