Study: 28 percent of companies pay bonuses to underperformers

Compensating executives with bonuses or other incentives for quality work is the sign of a solid organization that values its employees. Executives and other management types who successfully lead their respective teams to a profitable year often deserve to get rewarded for their efforts, and paying bonuses can enhance motivation and overall productivity. Unfortunately, organizations don't always assign bonuses exclusively to their best performers. 

According to Towers Watson's 2013-2014 Talent Management and Rewards Study – North America report, 28 percent of businesses pay bonuses to underperforming employees. In fact, according to the report, many of these recipients fail to meet even the lowest possible performance ranking. Although this can apply to all employees, it's likely that some fall under the manager and executive category.

This can be extremely problematic. If your organization is obligated to pay bonuses to employees based on certain criteria, and that criteria is met regardless of the performance of some employees, you are not only rewarding unsatisfactory behavior and working habits, you are taking away some of the credit due to the top performers. An article in Forbes discussed this study, and contributor Victor Lipman expressed his outrage over the surprising statistic.

The main problem here is that businesses show that they will accept below-average performance. Not only are subpar performances tolerated, they are encouraged, albeit inadvertently, by being rewarded. This gives hard-working employees little incentive to strive to do better and rightfully earn their bonuses.

Ultimately, this creates a corporate culture that values mediocrity. Businesses that conduct themselves in this manner will not be able to grow and succeed in the future. These values trickle down to the rest of the company and can cripple an organization as a whole.

So what can be done to combat this problem? If managers are among those being rewarded for poor performance, they will have to be replaced. However, making a change for the sake of doing so is not an effective strategy. Changes must be made for the betterment of the organization, so those searching for replacements must ensure they are doing their due diligence to find the right people to fill these roles. 

This is only part of the equation. Lipman says that those responsible for providing these bonuses should also be held accountable. 

"I fully appreciate that management is hard work – I did it for several decades and write about it all the time," he wrote. "It involves making many difficult, painful decisions, and there are many pressures from above and below.  But this hardly qualifies as management. It's management without consequences, management without differentiating – in short, management without really managing."

If you recognize that those awarding bonuses for poor performance are the problem, you may need to take action against them as well. Managers must embrace a culture of success, and if they are not holding underperformers accountable for their actions, they may need to also be replaced. 

Again, this has to be done in a way that benefits the company in the long run. Working with an executive and senior management search firm will help you find the right people for the job. This will result in a more productive organization as a whole.