The Double-Edged Sword of Bonuses: Are You Getting What You Really Want?

Every year, I sit down with business owners and managers who are standing at a crossroads with their team bonus system. They’re frustrated, and their teams are even more so. What I’ve realized over years of working with various companies is that bonus systems are a double-edged sword. When designed correctly, they can drive exactly the behaviors you want. But here's the kicker: if you’re not crystal clear on your goals, those same bonus systems can just as easily lead you down the wrong path.

Designing Bonuses That Actually Work

The first, and most important, point to consider is that your bonus system must be designed around your goals and objectives. Too many owners and managers have vague ideas of what they want from their team, and their bonus structures reflect that vagueness. If you aren’t specific about what behaviors you want to incentivize, you and your team will end up frustrated. It’s simple: a well-designed bonus system rewards behaviors that align directly with your company's success. The wrong bonus system? It rewards the wrong things—and creates a culture that leads to underperformance, resentment, or both.

Flexibility is Key

One of the biggest mistakes I see is treating a bonus system like it’s set in stone. Your business changes, your goals evolve, and so too must your bonus system. Locking into a rigid structure is a surefire way to generate conflict. If you or your team start seeing the bonus as an entitlement, you’ve lost the game. Bonuses should evolve with the needs of the business. If they don’t, they can become a burden rather than a motivator.

Clear Communication is Non-Negotiable

Here’s something I can’t stress enough: if your team can’t explain to you in two minutes or less how they contribute to the bonus system, they don’t understand it. If they don’t understand it, they can’t hit the goals, and your bonus system is dead in the water. You need a clear communication system in place, one that not only explains the mechanics of the bonus but reminds everyone, regularly, where the team stands in relation to it. Without ongoing communication, your bonus system will fail.

The Problem with Seasonal Bonuses

Now, let’s talk about one of the biggest traps: the dreaded seasonal bonus. These bonuses cause more frustration than anything else. Why? Because once your team starts expecting that holiday bonus, it’s no longer a bonus—it’s part of their base salary. At that point, the bonus is no longer incentivizing performance; it’s just a given. Your team stops caring about the performance metrics because they expect that bonus no matter what. The moment a bonus becomes an expectation is the moment you lose its power to motivate.

No System is Perfect—And That’s Okay

You’ll never make everyone happy. It’s a fact. But as a leader, you need to make the tough calls, including eliminating or restructuring bonuses when they no longer serve your goals. Some team members will resist, especially when you make changes to beloved seasonal bonuses. But if you want long-term success, you need to shift their mindset from short-term rewards to long-term gains.

Incentivize to Drive Your Business Forward

The bottom line is this: bonuses should never rely on everyone’s “good nature” to figure out how to drive the business forward. That’s your job as a leader. Your bonus system should be a tool that actively leads your team in the right direction, toward achieving the objectives that matter. Don’t let your team get comfortable with seasonal bonuses, and don’t fall into the trap of letting bonuses become entitlements. Use them wisely, and they’ll propel your business where you want it to go.