Economists have for a long time argued that performance-based bonuses raise performance. Indeed, many firms use bonuses tied to individual performance to motivate their employees. However, there has been heated debate among human resources professionals recently, and some firms have moved away from individual performance bonuses toward fixed wages only or collective performance incentive schemes such as profit-sharing or team incentives.
Bonus plans can work,
but they are no panacea to motivate employees in firms.
When simple key performance measures are available that capture key elements of an employee's work and when they are hard to monitor, then bonus payments based on individual employee performance measures tend to work as expected.
However, individual performance bonuses may have limited effects for certain types of employees, for instance those who are
strongly self-motivated to give their best.
Furthermore, other management practices such as symbolic rewards or performance review conversations can alternatively motivate employees. Moreover, when individual performance cannot be assessed objectively, subjective assessments must be used to determine bonuses and these tend to be biased.
An alternative to individual performance bonuses are team bonuses based on the success of a specific team or of the whole organization. While economists have typically feared free-rider problems, there is mounting evidence that team bonuses may work quite well as they raise both incentives and cooperation.
Despite universal basic income (UBI) being present in the policy debate for more than two decades, its evaluation still suffers from the popularity of a variety of mistaken perceptions or interpretations.