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Giving Bonuses in Bad Times to Make Productivity Gains Stick

Posted by: Nanette Byrnes on February 6, 2009

Even on a day when the out-of-work are top of mind, it’s worth thinking about how to motivate those left behind.

Today’s headlines are focused on the nearly 600,000 jobs lost in January. And for good reason. It is a staggering figure, and the losses are distressingly “large and widespread across nearly all
major industry sectors
” to use the Department of Labor’s own words.

With so many workers hitting the street, the productivity of those remaining is on the rise, but can that last?

Ravin Jesuthasan, a managing principal at Towers Perrin, warns that the kinds of productivity gains we’ve been witnessing are going to plateau sometime soon. Those left after the layoffs can only pick up so much slack. Further, Towers has found that at least 40% of employers have now frozen the wages of those who are fortunate enough to still be drawing a paycheck. Jesuthasan expects that figure to climb by the end of the Spring.

More work and flat pay does not add up to a recipe for happy workers, but Jesuthasan says there is one thing smart companies are focusing on that can have a big impact: bonuses based on performance.

Wall Street may have given this idea a bad name in recent weeks, but overall, Jesuthasan says, over the past ten years more companies in more industries have begun linking some pay to performance even among the rank and file. And he’s pleased to see that most of his clients are not abandoning the practice even in these tough times. Typically workers have a shot at a bonus of around 5 to 6% of pay, he says.

“Even though their salary is frozen, they have a chance to make significantly more,” he notes. Typically the lower down the organization, the more directly a workers bonus will be tied to their own performance or their group’s results. So even if the recession is hurting corporate profits, they can still see a payoff if they’re hitting other targets. “It can be a management tool to help turn around the company,” he says.

Among manufacturers, he’s now seeing a rising interest in the gain sharing programs first made popular in the 1990s in which companies share the benefits of productivity gains with employees. Measures like quality and volume produced, says Jesuthasan, are “highly controllable by the workforce.” Comparable metrics in service industries like airlines and retail are customer service, satisfaction and loyalty.

Reader Comments

Derek Irvine, Globoforce

February 6, 2009 1:55 PM

Increasing (or even maintaining) productivity is a challenge in this economy as employees are consumed by fear, anger and resentment and are distracted by the rumor mill. Targeted productivity improvement in those areas specifically most needed by management is even more difficult.

All employees need recognition for their efforts and validation that their work is appreciated — now more than ever. If those recognitions are tied to a company value demonstrated or strategic objective achieved, then employees begin to see how their individual efforts contribute to company success. This is by far the most positive and effective way of encouraging repetition of precisely those actions company leaders need from every employee to succeed in this recession.

More on this topic is available here:

Wally Bock

February 9, 2009 6:59 PM

Bonuses for improved productivity are a carrot that's at the end of a pretty long stick. I suspect that there will be several folks in the survivor pool who will ask, 'If you've got money for bonuses, why couldn't we keep Joe?"

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