In the world of variable compensation, a persistent dilemma remains: should companies prioritize individual bonuses to reward personal performance, or opt for collective bonuses to strengthen collaboration within and between teams? Many businesses face this question as they seek to optimize employee motivation and engagement. This article explores both approaches in light of research on team motivation while also proposing hybrid models that may offer the best of both worlds.
Individual bonuses: a powerful but risky motivator?
For many teams where individual autonomy is high and performance is easily measurable, individual bonuses serve as a major motivational tool. They allow each employee to see the direct results of their efforts, as highlighted in a study conducted by the University of Rochester. This approach is particularly popular in B2B sales roles, for example, where bonuses can account for up to 50% of a salesperson’s total compensation.
However, this approach is not without risks. The same study emphasizes that in highly competitive environments, an excessive focus on individual rewards can foster a sense of rivalry among colleagues. The pressure to meet targets can lead to stress and sometimes harm projects that require strong cross-team collaboration. As a result, some companies have decided to shift their bonus models by reducing the weight of individual compensation in favor of collective incentives, aiming to encourage teamwork and cohesion.
Collective bonuses: fostering collective success at the expense of individual recognition?
Collective bonuses reward teams based on their joint performance, encouraging a shared focus on common goals. This strategy is common in organizations where collaboration is essential to achieving the final product. In these situations, ensuring seamless teamwork and group efficiency is more critical for the company than recognizing a single high performer who alone cannot guarantee project success.
However, this model also comes with challenges. Collective bonuses can sometimes dilute individual recognition. High performers may feel a sense of unfairness if their contributions are not fully acknowledged.
Additionally, an overly collective system may fail to incentivize underperforming employees to improve. To mitigate this risk, some companies publicly recognize individual achievements (such as through competitions that reward top performers with trips), even if the primary variable compensation remains collective. This ensures that top performers feel valued for their work.
Finally, when collective bonuses become “too collective,” they may be perceived as redundant with profit-sharing plans, which already reward employees for their overall contribution to the company's success. This redundancy can reduce their motivational impact.
Motivation and satisfaction: insights from self-determination theory
The effectiveness of bonuses, whether individual or collective, largely depends on their impact on employees' intrinsic motivation.
According to self-determination theory, developed by Deci and Ryan, individual bonuses enhance intrinsic motivation by reinforcing feelings of competence and autonomy—two key psychological drivers of motivation. However, collective bonuses can also strengthen the sense of belonging, another pillar of this theory, especially when teams share common values and objectives. A company can maximize employee motivation by incorporating rewards that stimulate individuality while fostering collaboration.
Toward a balanced variable compensation model
Based on these studies, new variable compensation models have emerged that combine individual and collective bonuses. This hybrid approach ensures personal recognition while strengthening intra- and inter-team synergies. It is a powerful solution, especially when individual and collective criteria are assessed within the same bonus (or bonus component) rather than independently or additively. This means that an employee can only maximize their bonus if they excel individually while also contributing to collective success.
However, implementing this theory requires careful planning to avoid common pitfalls. Here are some frequent mistakes to avoid:
- Adding collective criteria by default, especially in teams that operate with high autonomy. If collective incentives do not align with the reality of their work, they will not be a strong source of motivation.
- Conversely, excluding collective criteria entirely in the name of individual performance, even when they are relevant. As companies accumulate performance data, some metrics can only be assessed at a collective level. Ignoring these indicators simply to maintain a focus on individual performance could prevent companies from fine-tuning their compensation systems. By carefully adjusting parameters such as bonus weight and performance evaluation methods, businesses can optimize their approach.
- Choosing an overly broad collective level, grouping employees who have minimal impact on the given performance metric. The most effective collective level is often the smallest unit that still includes all key contributors to project success.
Both individual and collective bonuses have their advantages and drawbacks, yet they remain essential tools for enhancing motivation and improving overall team performance. By combining both types of incentives, companies gain a powerful way to engage their employees while aligning them with organizational priorities. The key lies in striking the right balance—one that can be adjusted depending on the company and its teams.
