My CEO executive coaching clients frequently wonder how best to motivate and retain key employees. The question often takes the form of, “Should I give her an unscheduled bonus or a raise?” The business owner often tends toward a raise because it defers the cash outlay. My study of psychology recommends the bonus.
I have written about Professor Christopher Hsee of the Booth School of Business before. Recently he spoke explicitly about the bonus vs. raise question. “If you ask a typical employee, he or she will tell you they want the salary. But that’s because they don’t understand psychology,” Hsee said. “You should give them the bonus instead. Salary is stable and people adapt to the new salary level quickly. Bonuses are not as easy to adapt to.”
Hsee also supports my advice about giving a gift, particularly something the employee wants but might not indulge in. “Give somebody something they like but won’t (more…)