End of the year is the time not only for Christmas parties, but it is also when many companies pay out bonuses based on performance for the year for senior management and either 6 or 3-monthly bonus pay outs for middle management and team members. I have often heard the comment, “I am waiting for the year end to get my bonus payout before I put in my notice.” Hand on heart, I would do the same. Working hard all year to earn a lovely Christmas bonus to spend on the family, a holiday or something that needs doing around the house makes complete sense. Does this work for the company? While it might leave a bad taste in your mouth, the person has done the work and therefore the payout was budgeted. The only gap is the vacancy the person leaving creates. The reason why they have decided to leave can be many and varied and is not the topic of this blog.
It was a couple of years ago I read an article in the Sunday Times (Business section) “Bosses: Is the Party Over?” by Ben Laurance. The article was about Neil Woodford of The Woodford Patient Capital Trust, who after many years of paying bonuses to his fund managers had decided to scrap them altogether and compensate his team members with a rise in base pay instead. The question this begs is “Will these actions enhance or discourage performance”?
Woodford believes there is very little correlation between bonus and performance, which in his opinion, can lead to short term decision-making and wrong behaviours. I would suggest the terms of the scheme and method of measuring performance impacts decision making and incorrect behaviours. Without knowing the content of the Woodford Patient Capital Trust particular scheme, it is difficult to validate his comment either way.
A very recent article by Esa Employment Law Solicitors – Weighing the pros and cons of Big CEO Bonuses clearly outlines the dilemma. “These big CEO bonuses are controversial because excessive executive pay often comes at the expense of workforce pay, exacerbating income inequality and potentially harming employee morale and trust in institutions. Critics argue that these high payouts are not always linked to improved company performance and that the incentives within the pay packages don't always encourage long-term stakeholder interests.”
In the banking and larger finance industry, bonuses are commonplace. One could argue they are expected, particularly by senior members of management. In recent years we have seen massive bonuses paid out to senior executives despite doing a poor job. Channel 4 (2024) is a case in point: “Bosses took hundreds of thousands in bonuses despite the broadcaster suffering its steepest revenue fall in 41 years, leading to significant job cuts,” reported Mark Sweney in the Guardian (October 2024).
Thames Water (2023): “The CEO and CFO initially agreed to forgo bonuses due to poor service to their customers, but the former CEO had received a £496,000 performance-related payout the previous year.” (Ref BBC)
Advantages and Disadvantages of Bonus Schemes
Benefits to the organisation for paying such rewards, apart from the supposed incentivisation is to focus team members to the goals and if the incentive is well thought through and set within achievable limits, financial targets will be achieved and perhaps even overachieved. Thus, driving company growth and market share. Other benefits include:
• Attracting and retaining top talent
• Aligning interests with shareholders
• Driving company performance – which as mentioned earlier might not always be the case on senior level.
• For senior executives rewarding risk and responsibility for overall company performance.
What are the down sides of paying these rewards? Large bonuses as seen in the banking and financial sectors experienced reckless behaviour by individuals who were taking huge risk chasing their reward with little regard for the stability of the bank or institution. This is when the EU stepped in to limit bonuses for bankers to no more than double the base pay. Research on the impact of this move by Irem Tuna of London Business School and Anya Kleymenova of the Booth School of Business in Chicago, suggest that this move did indeed reduce risk-taking. However, at the same time turnover of executives in financial firms increased. It is not clear if this is the only factor for this apparent negative spin off. Other apparent disadvantages include:
• Weak link between bonus payout and company performance. Perhaps because the scheme guidelines are unclear, force majeure circumstances where the top executives have no control. For example, being reliant on imports from a country that has been sanctioned for whatever reason.
• Overly focused to short-termism and financial targets that drive their personal reward.
• Short-termism in making decisions for investments that will benefit the company and employees within the company in the medium to long term.
• Negative impact on employee morale and company culture due to the massive divide between executive pay and bonus payout and that of their teams.
• Short-sighted priorities by focusing on executive reward when these funds could be used for training and development or other investments within the company.
The question around senior executive bonuses is reflective of broader questions about the purpose of leadership, fairness around reward systems, motivation and morale. Well-designed bonus schemes can be powerful tools: they attract forward-thinking leaders, align executives with shareholder goals, and motivate outstanding performance. When structured effectively, these incentives recognise the scale of responsibility and risk leaders carry, while projecting confidence and ambition to the wider market.
The downsides are just as significant. Inflated CEO bonuses can damage employee morale, deepen income inequality, and at times reward leaders even when true business performance falls short. When these incentives are poorly linked to long-term objectives or robust performance measures, they can encourage short-termism and weaken trust both inside organisations and in the wider society.
The question I will leave you with is “Can we solely attribute performance or non performance to a bonus scheme?” Surely leadership plays a part in creating the right environment for effective performance in meeting department and company goals whether financial or otherwise?
References
https://www.theemploymentlawsolicitors.co.uk/news/2025/08/28/ceo-bonuses/
Want to discuss your training needs for 2026. Contact: https://www.greenkeypersonaldevelopment.com/pages/contact
HOW DO LEADERS IMPACT THE ATTITUDE OF TEAM MEMBERS?
THE POWER OF GRATITUDE
BEHAVIOUR IS DRIVEN BY THOUGHT
Rachel Shackleton is an entrepreneur who owns and manages Green Key Personal Development and Green Key Health. Working with local and multinational organisations, she is a public speaker and trainer in the spheres of leadership, communication and customer excellence. She ensures sustainable productivity and profitability through healthy self-management and leadership practices, ensuring a focused and successful workforce.