The new owners of sandwich chain Pret A Manger have promised a £1,000 bonus to all employees who are on the payroll when the deal completes. But does a one-off cash bonus actually foster engagement, asks Ian MacRae?
Last week Pret A Manger announced that it is being sold to Luxembourg-based private equity group JAB holdings, and all staff will receive a one-off, £1,000 bonus.
A bonus like this will certainly be welcome to staff, but is a single, immediate payment the best way to reward employees? An immediate lump sum payment at work is much like winning the lottery.
Short-term, extrinsic rewards improve the recipient’s mood for a few days or even a few weeks, but the novelty and excitement quickly wears off. Some sectors like banking have a great deal of experience with this problem, but have yet to solve it.
Bonuses are lump sum payments that can be a highly sought-after reward, but the consistent lessons from work psychology show us that motivational benefits of immediate rewards wear off very quickly.
That’s not to say that employees will not appreciate or be excited by a one-off payment, but the effects do not linger or make any long-term changes to motivation or performance.
One thousand pounds will be an exciting, and surely welcome, bonus for all current employees, but as Pret chief executive Clive Schlee said: “The £1,000 bonus will be paid to all employees who are on the payroll during the week the deal completes. It’s serendipity for those who have just joined.”
Is it fair to all?
It is always great news when employees can share in the company’s success, but those same payments can be demotivating to longer-term employees when everyone gets the same lump sum payment irrespective of job tenure or performance.
There are many reasons people stay at good jobs for a long period of time. Employee retention is usually based on people staying with a good manager, or being part of a high-functioning team.
That’s not to say a £1,000 cheque isn’t great to receive – it’s just that the benefits to employee motivation or engagement don’t last long.
Making comparisons
In the long term, one-off bonuses can also make future financial rewards seem less motivating. People always consider their work decisions as a matter of social comparison and previous experience.
Getting a large, lump sum bonus one year, can make the regular wages seem insufficient the following year. Short-term, financial rewards that are not repeated can actually make subsequent compensation packages less attractive.
The research consistently shows that beyond a minimal level, there is no link between money and happiness. The difference between a £1,000 bonus and a £100,000 bonus makes a big difference to a person’s finances, but actually make very little difference to their happiness or motivation.
The best, most effective, and most motivating compensation packages are long-term, predictable and provide achievable rewards for personnel based on their performance.
What are good motivators?
There are two key criteria that make extrinsic motivators most effective at work:
1. Timing
Extrinsic rewards (such as bonuses and compensation) are most effective when they are given at repeated intervals. Encouraging and motivating personnel for performance in the future works best when there are clearly defined and achievable rewards.
Long-term bonuses and rewards are most effective when there are clear objectives for an employee to work towards. A one-off payment is great, but it does very little to encourage or reinforce good performance or employee loyalty in the future.
2. Conditions
Extrinsic rewards are the most effective motivators for personnel when the condition is tied to an employee’s own behaviour or performance.
A one-off bonus to everyone in the company can share the rewards garnered from good financial fortunes of the company, but it does little to reward individual contribution or success.
Rewards become most effective motivators when they are clearly and specifically tied to specific measures of performance.
The verdict
Lump sum payments may not be the most efficacious use of money in long-term performance management and personnel motivation. However, it should not be too deeply disparaged. Sharing company profits among all employees is certainly a laudable step that will be appreciated by the staff.
The best way to build on that immediate reward is to use the growth and the momentum to continue to invest in longer-term rewards for people.
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One-off rewards are best when they are integrated into a larger framework of rewarding people for their contribution and performance to the company’s success.
Pret and its new buyer will well know that the most successful and enduring high street brands have a wide range of rewards for performance that make them attractive employers – as well as offering products that attract their customers.
3 comments
Great Article Ian!
Many good points made here. It’s true that employees will be momentarily happy and they might appreciate the company but in the long-term the money could have been spend more effectively. However, I wonder if this would be one of several rewards that are provided by the company over the year. Not all rewards need to be this large but a few spontaneous rewards might have a good effect, no?
Also, you wrote an article on this because it’s very attention-grabbing. In some way, this gives Pret a Manger a really good public standing as people see the company as one that cares about employees. What if the aim of this is to motivate and encourage employees but also to get the company a good social standing as being responsible employees. I feel just reading this article makes me appreciate the company more for helping their staff and caring about them. This might even make me unknowingly choose Preet a Manger over Starbucks if all other factors are the same. Hence, as a motivating strategy it might not be very efficient. But as a marketing strategy it can be argued that it is very efficient.
Very interesting area of research you look at though! I must read your book at one point!
Pret pays its employees more than minimum wage already as well as a weekly bonus tied to team performance. I know for some people that this is why they have chosen to work for the company. I also suspect that many will leave the company once this sum is paid out mainly because they are overworked not because the work is inherently difficult but managers and team leaders are hard to work with bar some exceptions. The better solution to increase motivation or retention or both would be to introduce a system for managers evaluation by staff members and paying its staff the living wage which currently stands at above £10.
did they actually give their staff this bonus?
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