Pay rise versus monetary bonus – which would you choose?

You’ve just completed your annual performance review. The boss is pleased. You wait in anticipation for the words, “Congratulations! You’ve qualified for your annual pay rise.” Surprisingly, your boss says, “I’m going to give you the choice of the standard pay rise or a $5,000 bonus. What would you like?”

Given the opportunity to take a pay rise or a bonus and most would probably opt for the bonus. But, let me throw you a little curve ball. What if your boss stated that you could have a three percent pay rise on the proviso that you do not receive a bonus over the next twelve months, or you can have a bonus equivalent to five percent of your standard salary with no opportunity for a pay rise over the next year. Ah…what do you choose!? The bonus still? It’s a situation that calls for a quick mathematical calculation. And don’t forget to factor in the taxation implications. Assuming this option is available year after year, you will find that the pay rise is a much more lucrative offer than a bonus issued for a stagnant salary year on year. With this knowledge the decision becomes a no brainer. You simply take the pay rise. BUT…what if this offer is not offered as an annual event?

I know, I know, I keep throwing those curve balls, but it’s an interesting conversation to debate and a scenario that arises more often than you think. So, to pay rise or not? To bonus or not? That is the question. Now most of us work to make a living. I mean, everything costs money, right!? And costs are rising. Like all the time! So we must work in order to fund our lifestyle and personal needs. Obviously more money in our pocket is always a favourable outcome. So we want to see our income continually rise. Most employers would opt to reward an employee with a bonus. Why? Bonuses can be controlled. This is particularly crucial in times of economic downturn. When profit margins are narrowed and spending is reigned in, bonuses can disappear. The same cannot be said for a salary that has steadily grown year after year. So why offer the choice I hear you say? Some businesses can afford to make such an offer. They have budgeted for an increase in payroll and are confident that their predicable and steadily rising profits can manage this extra expense without placing too much strain upon operations. Those industries experiencing rising costs and variable business cycles on the other hand are far more reluctant to voluntarily increase their payroll expenses, but are comfortable offering the random bonus.

Many businesses like to ensure that their offer of an incentive is well earnt. That is to say, they set their employees KPI’s around performance and should they meet those targets, they are rewarded. The hard working employee has obviously inflated their employer’s bottom line, so the bonus is not only warranted, but affordable. Often the extent of a bonus is determined by one’s position in the company. The more responsibility you have, and probably influence over company earnings, the larger your bonus could be. Some senior roles may even earn the majority of their annual income through bonus payments. But not all bonuses are tailored to the individual. Corporate wide rewards are also popular. Yet whether your bonus structure is tied to sales, profitability or some other cluster of business metrics, it needs to be relative to the future prosperity of the company.

Variable business conditions can make an employer shy about offering pay rises or bonuses. Particularly if they are not sure that their employee is going to stay for the long term. Alternate compensation for a job well done that additionally breeds loyalty is profit sharing, the issuing of company stocks, or ownership in the company.

Whether you do or do not offer your employees monetary incentives is not important. Well…not as important as recognising their contributions and sacrifices. No one goes to work expecting a pay rise. Or a bonus for that matter. We all simply live in hope. But we all expect a thank you from time to time. So do not fret if your profit margin does not presently allow you to splash some extra cash in the direction of your workforce, a simple, “Well done! What a great job you have done” costs you absolutely nothing, but is reciprocated in one’s pleasure to arrive at work each day and continually give their best for the company. Bottom line, it’s about demonstrating that your employees are valued.