This text aims not to offend any organisations or criticisze their internal systems and policies. Instead, it contributes towards improving the bonus distribution system to satisfy both employers and employees, thereby preventing any perceived unfairness. Moreover, this initiative is grounded in academic research, through which I seek to introduce a new bonus model in financial institutions.
A bonus is essentially an extra amount of money awarded to employees as a reward for satisfactory work performance. These bonuses can take various forms, including mid-year bonuses and performance-based bonuses.
Understanding the role of the bonus as a key dependent variable within organisational structures is crucial. Typically, a company allocates a bonus pool to each unit based on the financial performances of both the company at large and the individual unit. This pool is then distributed among sub-units and ultimately to individual employees, often based on a subjective evaluation of each employee's performance.
Consequently, the bonus payment is directly linked to the financial success of a unit and the contributions of its employees.
Bonuses have been recognised as powerful tools for enhancing employees' attitudes toward work, encouraging them to improve their performance and competencies. Employees generally look forward to receiving bonuses as recognition for their hard work and commitment.
However, whether a bonus is a demandable right of an employee remains a contentious issue, as most employment contracts do not specify bonuses. Given that employees contribute significantly to company profitability, they might view bonuses as just rewards for their efforts.
According to the ruling in Manila Banking Corporation v. NLRC et.al., G.R. 107487, dated September 29, 1997, the decision to grant bonuses is a management prerogative and not a mandatory obligation beyond paying the basic salaries or wages.
The period when bonuses are distributed is often marked by disagreements, heated discussions, and disputes, which can lead to perceptions of unfairness. Questions arise concerning the fairness and accuracy of the Key Performance Indicators (KPIs) used to rate employees.
It is essential to consider whether the KPIs were appropriately set, whether employees were adequately informed about their responsibilities, and whether the assessors are suitably qualified to evaluate the employees accurately.
Management literature suggests that differentiated ratings can demotivate employees if they perceive their compensation as unfair. Many talented employees have left organizations due to such perceptions of unfair bonus distribution, which often stems from non-scientific distribution methods and hierarchical misuse of power.
A common method for determining bonuses involves performance ratings, typically on a scale from 1 to 5, with corresponding payouts. For example, a rating of 3 might yield a bonus of three times the basic salary, e.g., RO 1,500 x 3 = RO 4,500. However, this model's flaw lies in the subjective nature of assessments, which can be influenced by personal biases or emotional responses.
To rectify this, I propose a new model that evaluates employees based on more objective criteria: years of experience within the organization, professional development activities undertaken, contributions of ideas, and the completion of assigned tasks over the year. This method ensures a fairer distribution of bonuses, reflecting employees' true value and contributions.
Implementing this model will likely result in all employees receiving bonuses that accurately reflect their value to the organization. Nonetheless, management can proudly claim that 100% of employees received bonuses based on objective, scientific methods, eliminating the randomness and potential unfairness of previous systems. This approach not only aligns with principles of equity and motivation but also enhances organisational integrity and employees’ satisfaction.
[Author’s note: This bonus model is the sole property of Mohamed Anwar al Balushi. We reserve the right to all intellectual property associated with it, including reproduction, distribution, and modification, in accordance with applicable copyright laws.]
The writer is an academic lecturer and adviser at Oman College of Management and Technology
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