Using our heads to solve your Reward challenges.
Bonuses are supposed to be the carrot (or a stick) that makes the donkey move (apologies for the mental image of your high-performing colleagues as donkeys). In theory, incentives should focus everyone’s energy on what matters most to the organisation. In practice? The carrot often ends up dangling in the wrong place.
The big question is: what should bonuses actually reward? Revenue? Profit? Or those less tangible but equally important things like leadership and collaboration? Below we’ll take a look at each of these and the pros and cons of each measure.
1. Revenue: the tempting measure
Initially, Revenue can seem like the most obvious and most tempting measure to use; if you sell more, you earn more. It’s easy to measure, easy to explain, and easy to celebrate, and makes for great announcements when your teams meet or exceed their goals.
However, there’s a catch. Revenue does not automatically correlate with success; a business can grow top-line sales while quietly losing money at the bottom line. I once worked for a company that handed out champagne because revenues had surged 20%, only to discover a few weeks later that costs had surged 25%. The corks popped, but so did the CFO’s blood pressure.
Rewarding revenue alone can also encourage unhealthy behaviour: discounts that erode margins, overpromising to customers, or focusing only on short-term wins.
2. Profit: the grown-up choice
If revenue is the exciting headline, profit is the sober fine print. Rewarding profit feels more sustainable: no business can survive without it. Bonuses tied to EBITDA or margin protect against the “champagne and nosebleed” scenario above.
However, profit isn’t always in an employee’s direct control. Market shifts, currency fluctuations, or a sudden spike in energy costs, among many other macroeconomic changes, can obliterate margins overnight with no input from your employees whatsoever. Telling staff their bonus has vanished because of events across the world’s political stage that, again, they had no input in or way to affect, will almost certainly cause morale to plumet.
Profit is essential for the survival of the business, but it’s often too distant from day-to-day behaviour to feel fair as a bonus measure.
3. Behaviours: the underrated option
Apart from cold, hard metrics like revenue or profit, there’s also the “softer” side: rewarding behaviours, like collaboration, leadership, innovation, or living the company’s values. This approach recognises that long-term success comes from how people work, not just what they deliver.
The challenge comes in measuring behaviours. How many “collaboration points” equal a bonus? If you’ve ever sat in a meeting trying to score someone’s “team spirit” out of ten, you’ll know how awkward it gets. (Pro tip: avoid doing this in front of them.)
Regardless, when done well, behaviour-based bonuses can shape culture in powerful ways. They encourage people to think beyond personal gain and invest in building a sustainable organisation.
Perfectly balanced, as all things should be
If all the different measures have drawbacks, then which should you choose? Which option is best?
None of them, on their own. The best bonus scheme is a balanced bonus scheme that rewards both long- and short-term goals, while incentivising meeting financial targets and longer-term cultural and strategic goals. And the most important goal when deigning your bonus scheme is to find the splits or weightings that are the most appropriate for each element depending on what the business is looking to achieve strategically.
A scheme with balanced measures offers better alignment with the business strategy; thoughtfully combining revenue, profit, and behaviours can motivate people to achieve their targets, but also to deliver the business goals in the right way. This disincentivises negative actions to drive the bonus (as mentioned, excessive discounting, overpromising, etc.), which helps protect the business’ reputation while ensuring business growth.
A mix of short-term financial targets and longer-term cultural goals can help businesses grow sustainably, not just superficially. Short term gains are all well and good, but mean nothing if the business can’t sustain momentum. To keep growing sustainably, the business must plan appropriately for the future and continuously drive the desired behaviours and progress towards financial goals, while maintaining morale and employee engagement. A well-balanced bonus scheme is key in achieving this. A scheme that only rewards short term gains, as seen in the revenue section, is likely to have unintended negative consequences and be unable to sustain momentum.
Also, rewarding positive behaviours alongside financial goals can reinforce company values like collaboration, innovation, and leadership. Again, this can help disincentivise negative bonus-driving behaviours, while contributing to healthier long-term performance.
Finally, well-designed bonus schemes with balanced measures can clarify what success looks like for both employees and leaders, improving trust and understanding of performance expectations. This improves morale and engagement for everyone and promotes a healthy organisational culture, again leading to more sustainable long-term growth.
A touch of perspective
It’s worth remembering that bonuses are just one part of the reward puzzle. They can nudge behaviour, but they can’t fix a broken culture, an uncompetitive base salary, or a lack of recognition. A bad boss offering a big bonus scheme is still a bad boss.
And sometimes, in the pursuit of perfect measures, organisations overcomplicate things. I once saw a bonus plan with 13 different metrics, including “number of staff Christmas cards sent.” (Yes, really. Spoiler: December was a very festive month that year.)
Final thought
So, what should bonuses reward? Revenue, profit, or behaviours? The smart money says: a thoughtful mix of all three. Because businesses need growth, sustainability, and culture to thrive.
Get the balance right, and bonuses become a lever for alignment and energy. Get it wrong, and you end up with a donkey chasing the wrong carrot.
And nobody wants that in the annual report.
At Reward Heads we have worked with a number of organisations across various sectors to support them with their bonus scheme design and principles, reviewing them or designing them from scratch. Of course there is a lot more to it than simply the headline measure.
To find out how we could help your organisation, please contact us at rewardsolutions@rewardheads.co.uk