(Extracted from Double Your Profits: In Six Months Or Less by Bob Fifer)
Once any bonus, any reward becomes automatic, it ceases to serve any motivational purpose and becomes a tool of bad, not good, management.
I also don’t believe in regular quarterly or annual bonuses, even when tied to performance. Once bonuses are regularly set on the calendar, managers lose their discretion and their courage to award the bonuses truly differentially and based on merit.
I am a strong believer in bonuses. I manage with carrot and stick. However, bonuses are most effective when they are irregular and ad hoc. Give a bonus whenever it’s deserved, and never when it isn’t. It will look irregular on the calendar, but very regular in the motivational sense—a bonus will be received when performance or behavior has merited it.