Why Retention Bonuses Are A Bad Idea (And What To Do Instead!)

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Retention bonuses tend to be a quick-fix cure-all during critical business events like mergers and acquisitions, product development, and as we’re currently witnessing, to combat talent shortages and the devious efforts of competitors poaching.

While there’s not much evidence to prove they work, they can also do more harm than good. You may even come across as ingenuine, as you’re effectively treating the employee like a commodity.

Here are four reasons why retention bonuses are a bad idea, and what you can do instead to retain your people!


#1 Retention bonuses are one-offs that don’t foster long-term loyalty

Sure, a bonus is shiny and unexpected and awesome at the time. But at the end of the day, a bonus is just a bonus, and its shine will wear off over time as the cash is spent and the regular workday (and life) carries on. Consider how much your one-off bonus compares to a years’-long higher salary package being offered elsewhere. 

#2 Money is ineffective if it’s not the real reason people leave

What’s the real reason your employees feel motivated to leave your organisation? 

In our 2021 Candidate Motivators Report, 23% of respondents who changed jobs last year did so because they were chasing a higher salary. Of the people intending to change jobs, 20% are doing so with the pure intention of securing a higher salary. So, what else is motivating them to fly the roost?

#3 Secrecy or inequity around bonuses can push others to leave

You’ll want to make sure you’re rewarding people fairly and transparently. If you’re cherry picking your MVPs in the plain sight of *everyone else* (even with transparency around why and how much), there’s a fair chance those left out will feel unappreciated and disgruntled.

#4 Retention bonuses can encourage poor behaviour

Some employees might interpret your ‘kind gesture’ as a desperate attempt to hold onto staff. The current talent shortage isn’t a global secret – it’s being talked about everywhere. So, if your people catch wind of desperation, it could encourage them to exploit the situation. 

For example, they might attempt to enter negotiations, threatening to leave if you don’t pay up, or they might bring the bonus to you first, again threatening to leave if you don’t respond. For others, they may take this as cue to ‘relax’ a little in the workplace, as your desperation to retain them could indicate job security.

What’s a better way to retain employees, then?

Long-term loyalty should be the desired goal, which requires daily intrinsic motivators and dissatisfaction crushers. Tapping into Herzberg’s two-factor theory on motivation-hygiene, where intrinsic motivators such as work purpose, career development, and achievement and recognition function as motivators for job satisfaction. On the flip, hygiene factors, like interpersonal relations, financial benefits, and working conditions influence the rate of job dissatisfaction (but not necessarily motivate people to stick around).

You might want to incorporate these five ideas to make a stronger impact:

  1. Give your employees a salary raise

  2. Offer alternative retention options, like stock options, which incentivize sticking around

  3. Provide employees with training and growth opportunities

  4. Create a workplace that allows (and supports) healthy work-life integration

  5. Conduct exit interviews to find the reasons people leave, so you can address them in your retention strategy.

Now that retention’s sorted – get in touch with Jodie if you need a hand attracting fresh talent to your opportunities! Jodie Gray – jodie@talenza.com.au