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.
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:
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.
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.
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.
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.