Do Manager Bonuses Increase Employee Turnover?
It would seem to make sense that pay-for-performance bonuses motivate staff and improve business outcomes.
But pay-for-performance or bonuses are usually restricted to the upper levels of any business.
It is a lot less common for regular, shop-floor staff to be incentivised in this way, and this is a potential area of division and conflict.
New research set out to examine exactly how pay-for-performance may strain working relationships:
We address this gap by examining the organization-level relationship between nonmanagement employee turnover and compensation policies that link managerial pay to performance
we hypothesize about the nature of the relationship between the
proportion of managers eligible for bonuses in the organization and non-management employee turnover
That is to say that the research team thought that more bonuses for managers would lead to increased levels of employee turnover in those not receiving bonuses.
The research team took data from 267 establishments in order to identify trends and patterns.
Once all of the data had been collated they found:
robust evidence of a positive association between the proportion of managers eligible for bonuses in the organization and voluntary turnover among non-management employees
The research team found strong evidence supporting their hypothesis – more bonuses did in fact lead to high turnover.
One factor was found to minimise this effect:
When organizational investment in HR practices to train and incentivize managers to treat employees well was low, turnover rates rose from approximately 13% when no managers were eligible for bonuses to 36% when all of the managers were bonus eligible.
When organizational investment in these HR practices was high, turnover rates hovered around 20% regardless of the proportion of managers eligible for bonuses.
While bonus cultures can be extremely effective in promoting positive business outcomes as demonstrated by this study it is important to consider unintended consequences of the introduction of such a scheme.