This article is an excerpt from the Shortform book guide to "The Great Game of Business" by Jack Stack and Bo Burlingham. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the benefits of instituting an employee bonus program? How do you build a bonus program?
According to Jack Stack and Bo Burlingham’s book The Great Game of Business, bonuses are a proven method of rewarding employees. Lucky for managers, bonus programs also encourage employees to work harder because they have a financial goal to achieve.
Continue reading for a breakdown of how employee bonus programs work.
Employee Bonus Programs
According to the authors, instituting an employee bonus program is a great way to offer rewards and encourage engagement. Bonus programs reward employees with extra money when they reach certain goals. The promise of the bonus captures employees’ attention and encourages them to actively work toward the company’s goals.
These programs must operate on a company-wide level, the authors say: Everyone in the company works together to meet the goals, everyone is judged with the same metrics, and everyone gets a bonus if the company meets the goals. This method works better than offering individual bonuses because it encourages employees to work together to meet a joint goal. In contrast, when employees compete against each other for more limited bonuses, conflict and a lack of cooperation arise as co-workers see each other as threats instead of allies.
Stack and Burlingham recommend constructing your bonus program with tiers. The minimum level of effort discussed above forms the baseline that employees must meet to earn their salaries, while the company’s other goals form the bonus tiers. As the goals grow more ambitious, the bonuses that employees earn for meeting each one increase as well. Stack also advises paying out bonuses every few months. This structure helps employees remain engaged throughout the year—the more frequent payouts keep them interested, while the increasing bonuses encourage them to remain active.
(Shortform note: As mentioned above, rewards trigger the pleasure centers of the brain, providing a burst of dopamine that increases motivation and positive feelings. This positive reaction can be enhanced by staggering these rewards and using a tiered structure, as Stack and Burlingham suggest. This kind of bonus program concretely shows employees how far they’ve progressed in meeting their goals, and according to business experts, making progress is the single most important factor for encouraging motivation, inspiration, and positive feelings.)
|Preventing Inter-Employee Competition
As Stack and Burlingham note, competing for bonuses can lead to conflict because competition requires one person to fail so the other person can succeed. For example, let’s say Sarah and Hank’s employers give a bonus to whoever sells the most books in one year. For Sarah to win the bonus, Hank must fail to sell more books than her. Her success relies on his failure, which might make Hank feel resentful. These negative feelings increase conflict, making Hank and Sarah less likely to appreciate or support each other.
Stack and Burlingham recommend mitigating this problem by only offering company-wide goals, but there’s another option: Offer individual bonuses that make employees compete against themselves, rather than their co-workers. This prevents conflict, helps employees appreciate each other’s work, and can make employees happier.
For example, let’s say Sarah and Hank’s employers change the program so any employee who sells 100 books in a month earns a bonus. For Sarah to win the bonus, she has to push herself out of her comfort zone and work hard to reach more customers and make more sales. Her success doesn’t rely on Hank’s failure; in fact, he can sell 100 books and earn the bonus as well. Since neither Sarah nor Hank has to fail, there will be less resentment between them. They’ll be better able to appreciate and support each other.
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Here's what you'll find in our full The Great Game of Business summary:
- The best and most efficient way to create a successful business
- Why employees should see the company as theirs rather than just somewhere they work
- The principles of fostering employee ownership