You deserve a bonus, don’t you?

Who doesn’t enjoy getting a bonus at work? It’s not just because of the money either. A bonus can be more than a financial reward for work done; it can be an incentive, a sign of recognition for professional achievement and an encouragement to do better. Generally, a bonus comes under one of two categories: nonproduction or production. The US Bureau of Labor Statistics (BLS) defines nonproduction bonuses as cash payments that are not directly related to individual productivity, such as employee recognition, holiday bonuses, and cash profit sharing. Performance-based production bonuses are paid to incentivize employees to achieve specific productivity goals.

In March 2022, 41% of private industry and 37% of state and local government workers had access to nonproduction bonuses, according to the BLS. Accessibility of such bonuses varies significantly across industries. The report finds the leisure and hospitality sectors have access rates of about 23%, while financial activities enjoy access rates of 67%. A separate 2023 report shows that access to nonproduction bonuses ranges from 30% for service occupations to 54% for management, professional, and related occupations among private industry workers.

It’s easy to assume that those getting the best bonuses work the hardest, but a 2009 McKinsey & Company report on motivating people indicates that many financial rewards mainly generate short-term energy boosts, which can have “damaging unintended consequences.” At the same time, there’s no denying the appeal of money. So, even if alternative incentives might be more motivating, understanding how to negotiate a nonproduction bonus effectively is valuable in maximizing both performance and rewards.

How a bonus can affect motivation

A bonus can be a double-edged sword, according to Kim Blue, a consultant, strategist and executive coach. “[It] can be both a motivator and ineffective at getting employees to perform,” she says. “If an employee is motivated by achievement or recognition, then a bonus is a positive incentive for strong performance. However, not all employees are motivated through monetary incentives, which could create the need for other incentives or offerings.”

Kristen Zavo, an executive coach and author of _Job Joy: Your Guide to Success, Meaning, and Happiness in Your Career, _says a bonus system needs to be aligned with the employee’s goals to work well. “Is [the bonus structure] aligned to personal goals? Are there misaligned incentives that pit you against your coworkers?” she says. In an ideal setup, she notes, a bonus system should harmonize the interests of the individual, the team, and the company, thereby promoting a cohesive and productive workplace environment.

However, bonuses can only go so far, she adds. If the role or incentives are not the right fit and aligned with your needs, a bonus will provide only a short-term morale boost. “It’s not that monetary incentives aren’t effective, it’s [that it’s] no longer enough to satisfy driven employees in the long run, who also need to feel seen, valued, and impactful in their roles as they belong to something they can be proud of,” she says. This requires a different type of incentive.

More generally, Zavo says, “Bonuses reflect the [company] culture, both positively and negatively.” If the bonus structure leads to unhealthy competition, jealousy, and diminished trust among colleagues, she says, it’s unhealthy for both the employees and employer.

Zavo and Blue both believe in company transparency when allocating bonuses. “It’s important that companies provide education on their compensation strategy, including how bonus targets are determined, how that’s related to performance, and the overall total rewards approach,” Blue says. Additionally, she highlights the importance of diversity and inclusion in minimizing bias to ensure a fair and accountable process.

How to negotiate a good bonus

While incentives such as professional growth and a sense of purpose might be more motivating in the long run, a cash bonus is always enjoyable. So, how can you negotiate a good one? Production bonuses are closely linked to measurable performance metrics, often offering more room for negotiation. Nonproduction bonuses, however, are often at the employer’s discretion and are usually negotiated during the job offer stage, a performance review, or when taking on new responsibilities or roles within the company. But hope is not lost – your annual bonus may be negotiable. It’s always worth asking. Here’s how to approach this:

1. Understand the structure

Zavo says you should understand the company’s bonus structure and workplace politics. “[Employees] need to understand from the beginning: How is the bonus structured? What do they need to do to show who they need to align with in order to hit those marks and be set up for success.” This involves having a plan approved by a manager and engaging in regular check-ins, ideally quarterly, to ensure no surprises when bonuses are evaluated.

2. Get to know the timing

It’s crucial to be aware of the timing of bonus decisions. You don’t want to make a request and find that you are too late for this year. “You should know when bonuses go out, so you can anticipate that,” she explains. “The year-end bonus may be determined much earlier in the year and, while last-minute changes are possible, they are less likely due to how bonuses are pre-allocated.” Find out about the company’s calendar cycle. Then arrange a meeting to discuss a raise or a salary bonus during your annual review or at a similar pivotal time.

3. Realize that workplace politics matter

Your visibility and networking can influence bonus allocation too, according to Zavo. “Who knows your name, who needs to know what you’ve been achieving, and how has your work affected the bottom line – [it] all matters,” she says. Decision-makers need to be aware of individual contributions beyond simply meeting performance targets.

4. Don’t think you’re entitled to one

Zavo advises adopting an objective approach in negotiations. “You shouldn’t claim ‘I deserve this.’ After all, entitlement doesn’t play a role. The question is, have you met the agreed-upon expectations?” she says. She recommends concentrating on aligning your performance with the anticipated bonus amount, emphasizing the use of objective facts and actual results.

5. Have a constructive conversation

If you didn’t receive a bonus you felt represented your worth, you can “discuss how to ensure this doesn’t happen next year [with your manager] through constructive conversations,” explains Zavo. This means actively seeking clarity on performance targets and bonus criteria, and setting clear expectations for the future.

6. Know your worth

It’s always valuable to find out what others at the same level as you are paid, or whether they get a bonus. “It’s always wise to be informed about your position in the market,” she says. This can be a useful benchmark when it comes to compensation and career growth discussions.

Taking stock of what really matters

While money is important, achieving true job satisfaction involves making sure that the complete package – salary, bonuses, and additional benefits – aligns with what you value most. “You can get more fulfillment when the whole package is aligned with what matters to the employee [such as] incentives such as flexible work schedules, paid time off, opportunities to lead, education credit, well-being resources,” explains Zavo.

So, what should you be negotiating? “I say negotiate them all,” she says. “Aim for the highest possible salary first, and then use bonuses to compensate for any shortfall in salary or to enhance their overall compensation.” But remember that your professional goals and objectives are what really matter. Working towards these can help you to be more motivated and productive – and to enjoy more job satisfaction.

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