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Recommended: Theories on the impact of motivation on employee performance

roject net income they believe will impress top management but could be perceived by their key employees as unattainable. Such an unrealistic target could discourage rather than motivate the operating unit employees.

Targets must be clearly understood. It is critical that bonus participants participate in the setting of bonus targets. Their views and suggestions should be given serious consideration. When their suggestions are rejected or modified, the reasons should be clearly communicated. Misunderstandings concerning the bonus targets create unproductive time spent in discussions and demoralized employees who believe that they are being treated unfairly.

Periodically communicate the outlook for bonuses. To maximize the motivational value of the program, the financial staff of each operating unit should periodically communicate the current outlook for annual bonuses to bonus participants. This is accomplished by comparing a forecast of the bonus criteria with the bonus targets. Using the forecasted percentage of bonus earned for the unit, each participant can forecast his or her bonus. A review of the key actions necessary to accomplish or exceed the forecast should be included in this periodic bonus update. This can be a very strong motivational tool, because the bonus participants have an identifiable personal stake in the accomplishment of these actions. Many companies include a bonus update in their regularly scheduled operating review.

Resolve bonus problems early. One way to accomplish this is to periodically update the outlook for bonuses for each operating unit. Strong lines of communication are beneficial to both operating units and corporate staff. One of the benefits of a bonus update is early identification of problems, which require action on the part of senior management. By identifying problems in the bonus program as the year unfolds, it is possible to take prompt action, minimizing damage. If the bonus criteria have not been clearly stated, they should be modified with the participation of unit and senior management.

Pay bonuses as soon as feasible. A bonus can represent a significant portion of a key employee's compensation. This serves the purpose of getting his or her attention, which is a double-edged sword. The focus of attention should be the future, but for many employees the current year is not their chief concern until the previous year's bonus is paid. Delays in paying bonuses may create apprehension and tension which are counterproductive. If bonuses for the prior year cannot be paid within the first month of the New Year, some of the positive impact of the bonus program is lost.

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