Handing Out Rewards

There are good and bad ways to recognize employees.

In December 2001, Federal Aviation Administration chief Jane Garvey announced that the agency would not be issuing executive bonuses that year.

Garvey acknowledged in a memorandum to FAA executives that many of them had performed extraordinarily and tirelessly after the Sept. 11 terrorist attacks. But the fact that aviation security had been so deeply compromised made bonuses unseemly. "I know you, like I, have asked yourselves what we could have done better to help prevent the attacks in the first place," Garvey wrote. "The impact of Sept. 11 has disrupted the U.S. air transportation industry and the personal lives of people throughout the U.S. In this unprecedented time in the history of the FAA, I do not think it would be appropriate to grant incentive payouts."

Garvey's decision came to mind during the past year as news outlets reported many of the companies involved in the financial sector collapse were handing out bonuses and other goodies to executives despite the roles they played in nearly bringing the world economy to its knees. Clearly, there are good and bad times to reward managers and employees-and good and bad ways to do it.

Bonuses and other awards serve several purposes. First, they recognize strong performance. Individuals earn them in addition to their standard salary by achieving results greater than what's expected. Groups garner awards by reaching goals set for them, such as hitting productivity levels above the norm. Second, awards aim to motivate others. Once awards are given, managers and employees who did not receive them see an incentive to perform to the level that would qualify them for awards. Third, awards help retain workers. Government agencies often justify bonuses by pointing out that they help offset salaries that are lower than those available in the private sector.

But awards can have two types of unintended consequences, one based on external perceptions and the other on internal perceptions. The problem with external perceptions has been demonstrated time and again when federal agencies provide bonuses to executives despite views that the agencies are not doing their jobs well enough. The Veterans Affairs Department frequently is lambasted for issuing bonuses despite ongoing management problems, for instance. The result of such public relations problems is trust in the institution erodes, weakening the support the agency might need to get the budget it requires in the future.

The problem with internal perceptions is even more insidious. There are usually more people who don't get bonuses than there are those who do. The majority of nonrecipients might see the awards as arbitrary and capricious and that erodes their trust in their leaders. Over time, managers and employees who believe they always are passed over for praise can become completely disenchanted.

When leaders prepare awards programs, they should keep both types of unintended consequences in mind. Forgoing awards when an institution is struggling might be in its best long-term interest despite the potential grumblings by hard-working employees. And ensuring that awards are perceived by everyone within the organization as fair and proper is essential to making them a net motivator instead of the opposite. Showing the best performers some love is good, but only if it's done right.

Brian Friel covered management and human resources at Government Executive for six years and is now a National Journal staff correspondent.