It is a quite common issue for many organizations - setting the right ratio between the base salary and bonuses of employees. The right ratio, which will allow to employees to feel the stability and attractive bonus, which will motivate them to reach a better performance. The balance can be delivered just by the right ratio between the base salary and bonuses.
The issue is more about the relationship between HRM and Line Management. The line manager usually believes in the power of high ratio between the base salary and the bonus. It is easy to understand as the manager believes in easier people management when the ratio is high as employees will be motivated to reach higher performance on their own.
In reality, this is not true. When you provide employees with the low base salary and the high bonus, it does not increase their performance automatically. Sure, for some employees it can be seen as a really high motivation, but the rest of the team can be quickly demotivated as they do not see the company and the manager as supportive part of their life. They feel to be abandoned in the moment of troubles on the market.
To make things even worse - when the bonus is really high the employees will spend a lot of their working time to find out the way how to get high bonuses without the performance outputs. The employees are clever enough to find out the way how to get it. It will spread as a fire then.
The common market practice is the maximum base salary vs. bonus ratio 70%:30%. When the bonus is higher than 30% of the annual base salary, the employees try to find the way to get their bonuses without value added to the company.
The bonuses work just when two main conditions are met. The employees must believe in the motivational role of bonuses, which is about the correct ratio between the base salary and bonuses. The second condition for efficient bonuses is the working and transparent goal setting process.
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[…] Dustin Burg wrote an interesting post today!.Here’s a quick excerptIt is a quite common issue for many organizations - setting the right ratio between the base salary and bonuses of employees. The right ratio, which will allow to employees to feel the stability and attractive bonus, which will motivate … […]
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