Our News

Is withholding a bonus a smart way to motivate staff? - HRM Online

By Alan J. McDonald


How and when should you withhold an employee’s bonus? HRM examines the legalities and neuroscience of this approach.

Qantas has made headlines for a provision in a performance bonus they announced in August. The bonus, paid when an employee signs a new wage agreement, will be withheld if the employee “harms” Qantas. The kicker is that individuals can also have their bonus withheld if a colleague is at fault.

“If one or more employees engage in any such conduct during the period, all employees in the relevant work group will lose eligibility for the bonus” says communication from Qantas to staff that Sydney Morning Herald sourced.

So what are the legal issues with such a provision? And beyond that, is withholding bonuses even effective?

Adverse action and coercion

The thing about a “bonus” is that it sounds like a one-time gift, which suggests that employers can give or withhold it on a whim. But it’s not that simple.

“The scope of an employer’s discretion really depends on the wording of the employment agreement or bonus plan in question,” says Aaron Goonrey, partner at Lander and Rogers’ Workplace Relations and Safety practice.

But the wording isn’t everything, says Goonrey. “Case law shows us that regardless of the language included in writing, an employer cannot exercise its discretion capriciously, unreasonably or arbitrarily.”

In the case of Qantas, their “harm” clause that would result in a withheld bonus requires further scrutiny. If it is withheld in an attempt to punish an employee for things like lawful industrial action, or is used to unlawfully discriminate against the employee, then Goonrey says it could count as adverse action.

Trying to prevent legal actions by withholding a bonus, or threatening to, might also count as illegal coercion under the Fair Work Act.

(For more, refer to HRM’s guide for navigating the murky waters of employee bonuses.)

Indiscriminate bonuses

Making a bonus indiscriminate like Qantas is doing – rewarding it to a whole swathe of your workforce rather than giving it to high performing individuals – can change things.

“From a contractual perspective, there is a difference between a discretionary or conditional bonus and one which applies to the whole workforce. Withholding an indiscriminate bonus would more likely be considered adverse action than withholding a discretionary or conditional bonus,” says McDonald Murholme principal lawyer Andrew Jewell.

Goonrey adds: “Conditions on such bonuses generally include the performance of the business and the contribution of the individual employee and their respective team. The ‘harm clause’ condition that Qantas is making with this bonus may require clarification.  For example, what constitutes ‘harm’? Will this vary from case to case? Would it make a difference if a member or member(s) of the team tried to prevent the ‘harm’?”

As a matter of smart workforce politics, it definitely should make a difference if you tried to prevent a colleague from doing something and are still punished for it happening. But that raises another issue: when and how is giving and withholding bonuses effective from an HR perspective?

The neuroscience of rewards/punishment

An HBR feature offers some interesting ideas on when and why people should be either tempted with a reward or threatened with punishment. Written by Tali Sharot, an associate professor of Cognitive Neuroscience at University College London, it refers to a fascinating study in motivating healthcare staff to wash their hands.

A New York state hospital had only 10 per cent of staff complying with directions to wash their hands before entering and exiting a patient’s room in the intensive care unit. A pretty simple intervention increased that figure to 90 per cent within four weeks.

In the control period employees were informed that the sanitisation dispensers were being filmed and there were signs warning staff about the danger of spreading diseases. Next the researchers introduced two elements of positive feedback: an electronic board near the dispenser said “Good job!” whenever staff used the dispenser, and a shift-by-shift “hand-hygiene” score was implemented. The study was then replicated in another part of the hospital with similar results.

Sharot’s takeaway is that positive feedback (even when it’s relatively insubstantial – especially when compared to the threat of spreading disease) is effective at getting staff to do something you’d like them to do.

Neuroscience suggests that when it comes to motivating action… rewards may be more effective than punishments. And the inverse is true when trying to deter people from acting,” writes Sharot.

Reward to spark action, punish to prevent it

The theory Sharot is referring to is that our biology has evolved to make us act when we anticipate a reward. For example, the possibility of food causes us to hunt. And the chance to get a raise makes us put in more effort (or at least to make more noise about our current effort).

Alternatively, the possibility of sickness, pain or social discomfort makes us freeze. We halt when we see a cliff edge and we refuse to make a deal with someone dodgy. “When we anticipate something bad, our brain triggers a ‘no go’ signal. These signals also originate in the mid-brain and move up to the cortex, but unlike ‘go’ signals, they inhibitaction, sometimes causing us to freeze altogether,” writes Sharot.

Freezing altogether is what a kangaroo does when it sees your headlights. So, going on this theory, you’d want to make sure any negative feedback in the workplace is targeted. If the staff member doesn’t precisely understand what you’re punishing them for, they may find it hard to work full stop.

Of course, humans are more complex than these basic principles, and you should be especially wary of taking simple lessons from neuroscientific studies. It’s much better to think of them as food for thought rather than as rules you can follow.

Given that substantial caveat, and looping back to the Qantas story, it’s a little sinister but placing that provision on the bonus seems sound. If they don’t want employees to engage in any bad behaviour, or perhaps industrial action, triggering a freeze response with the threat of withholding a bonus might just work.

Reference:  “Is withholding a bonus a smart way to motivate staff?, HRM Online, Tuesday 18th September 2018. Access here.