In this article, RedCore Head of C&B Kostiantyn Tkachenko explores why most bonus systems fail, not because of poor calculations, but because companies try to solve management problems with money instead of aligning incentives with real business outcomes.
Over the years, I’ve learned one thing: everyone wants a bonus system, but far fewer leaders actually know how to implement one effectively. As a result, I’ve seen all kinds of approaches. Bonus schemes often become the business equivalent of an all-purpose remedy: sales are down — introduce bonuses; discipline is slipping — introduce bonuses; worried about employee turnover — let’s add bonuses.
And here’s the interesting part: most failures had very little to do with incorrect Excel formulas or flawed calculations. The real issue was different. Leaders were trying to solve management problems with money. The outcome was usually the same: сompanies spent more, but the original problem remained.
A strong bonus system can eventually pay for itself. But that only happens when the decision is driven not by the mindset of “let’s throw in a bonus and people will suddenly start performing,” but by the ability to see the bigger picture.You need to understand what problem you are actually trying to solve, where a motivation system is genuinely required, and where a completely different approach is needed instead. You need to be able to assess risks, anticipate consequences, and spot those grey areas that seem insignificant at the start but begin costing the company money a few months later.
Over the years, I’ve worked with dozens of bonus programs: successful ones, questionable ones, and some that failed spectacularly.
Each case I’ll be discussing is based on real situations from my own experience. Together, they helped me develop what I call a manager’s checklist which was a practical guide to avoiding costly mistakes and protecting both your budget and your team.
Today, I’d like to share a few of those real-life examples. Think of it as a reverse playbook which may help you avoid some of the expensive mistakes even experienced leaders make time and time again.
Call the problem by its real name
Before you try to solve a problem, make sure you’ve identified it correctly rather than making it worse. Ask yourself one simple question: “What exactly are we trying to pay for?” An honest answer may surprise you.
The situation: deadlines are constantly missed, projects are running late, and the manager is under pressure. Their solution? Introduce a bonus for completing tasks on time. Why? Because it seems easier to pay extra for discipline than to improve processes, establish proper oversight, and hold people accountable.
At first glance, the idea may even sound reasonable. But let’s dig a little deeper. Aren’t meeting deadlines and completing assigned tasks already part of the role employees were hired and paid to perform?
What happened next was predictable: the business effectively started paying twice for the same result. Payroll costs increased, while specialists quickly realised there was no reason to push themselves. If deadlines now came with an additional reward, then apparently the base salary no longer required the same sense of urgency. Only a small number of people continued to go the extra mile.
You should never pay bonuses for work specialists are already expected to do. A good bonus system should encourage additional value for the business, not compensate for gaps in management.
Dive deeper
Have you identified the problem? Great. Now it’s time to find the root cause and understand what is actually driving it. Because more often than not, managers end up fighting the consequences rather than the cause itself.
The situation: The team is exhausted. Some people are showing signs of burnout, others are complaining about overtime, and a few have already started looking at the job market. The manager comes up with what seems like an obvious solution: increase salaries, introduce bonuses, or start paying for overtime.
Of course, we paid — the work had been done, after all. But then we asked ourselves a simple question: “Are we addressing the actual problem or just treating the symptoms?”
Once we dug deeper, it became clear that money wasn’t the issue at all.
The business was growing. The workload was increasing. But the team size and the processes had remained exactly the same. The team wasn’t struggling because they were underpaid. They were struggling because they physically could no longer keep up with the amount of work being placed on them. Compensation should never be confused with a solution to a systemic problem. Yes, for a short while people stopped complaining. But their productivity continued to decline.
A month later they would still be working overtime. Two months later they would still be exhausted. Six months later you’d be facing the exact same problem, only now with a significantly higher payroll bill. In this case, the only real solution was expanding the team, not introducing additional perks.
A good bonus system can amplify performance. But it cannot replace proper processes, effective organization, and competent leadership.
Understand what outcome you’re actually trying to achieve
More importantly, make sure it answers a fundamental question: “Will this KPI generate profit, or just produce nice-looking numbers?” This is where managers often make a critical mistake. They choose a metric because it’s easy to track and impressive to present, not because it genuinely benefits the business.
The situation: A newly appointed team lead proposed a bonus scheme for the sales team based on revenue, considering it the most transparent metric available. The logic seemed airtight: the more money the team brings in, the more they earn.
But businesses don’t survive on revenue. Businesses survive on profit. Revenue doesn’t account for costs, margins, or the contribution of other teams involved in delivering the product, supporting customers, and maintaining operations.
When we modelled the economics of the proposed system, we discovered that the bonus paid on a single sale could actually exceed the financial value that sale generated for the business. In other words, the sales department would have consumed the entire profit.
The mistake wasn’t the desire to motivate the team. The mistake was choosing a metric that looked right but failed to answer the most important business question: “Are we actually making money from this?” Revenue ≠ Margin.
That’s why it’s important not to rush. A bonus system is easy to launch, but much harder to redesign later. And it’s even harder to explain to employees why the rules suddenly need to change.
Regularly sense-check your logic
A KPI can be measurable, transparent, and seemingly useful, while still driving completely the wrong behaviour.
The situation: A new manager wanted to introduce gamification by offering small bonuses for routine tasks. Attend a conference? Here’s a bonus. Write a summary afterwards? Here’s another one.
Individually, every action was genuinely useful for the business. The problem was that people quickly learned the rules of the game. Before long, they were no longer working towards meaningful outcomes. Instead, they focused on whichever activities allowed them to earn their next reward as quickly and easily as possible. The manager believed he was motivating the team. In reality, he created a game. A game that wasn’t helping the business.
Keep bonuses tied to outcomes that directly support key business objectives. Your planning also needs to remain realistic. People will always do what you pay them to do. If you pay for activity, you’ll get plenty of activity. If you pay for results, you’ll get results.
Test against reality
Every bonus system looks perfect until real people start using it.
The situation: We once designed a motivation program intended to encourage specialists to take on a broad range of responsibilities. The idea was simple: if we rewarded Tasks A, B, and C equally, the team would become more versatile and workloads would be distributed more evenly.
On paper, it looked flawless. After launch, however, something interesting happened.
Specialists still gravitated toward the tasks they enjoyed most or found easiest to complete. As a result, one part of the team specialised in one type of work, while another group focused on something else entirely. The “universal workforce” never materialised. Nobody broke any rules. People simply adapted the system to their own interests.
And that’s exactly when you realise why bonus programs can never be implemented on a “launch and forget” basis. Many managers assume that if a system has been carefully designed, it will automatically work exactly as intended, because “I’ve thought of everything.”
Unfortunately, reality always has a way of introducing variables you didn’t anticipate. Every bonus program requires continuous testing and validation. Observe specialists behaviour. If there’s a way to optimise the system in their favour, people will find it. Collect feedback. Analyze which behaviours the system is actually encouraging rather than which behaviours you intended it to encourage.
Bonus systems are living organisms. And the only way to know whether they are working as planned is to test them regularly.
Don’t bury your head in the sand and ignore HR expertise
Let’s be realistic. It’s incredibly difficult to be an expert in sales, finance, motivation, business economics, and compensation design all at the same time. That’s exactly why effective bonus systems are rarely created by a single person.
The situation: A team lead made his position very clear: “Nobody understands how bonuses should be distributed in my team better than I do, certainly not HR. My team generates the company’s revenue, so they deserve the highest bonus percentage.” At first glance, this perspective may even seem reasonable. After all, who knows the team better than its manager?
The problem is that a bonus system rarely affects just one department. Managers often see only their portion of the process, while the risks to the wider business, the company’s economics, and other teams remain outside their field of view.
That’s why HR’s role isn’t to prevent managers from introducing new incentive programs. Their role is to ask the uncomfortable questions and highlight consequences that may not be obvious at the outset. A strong manager understands their team. A good HR professional understands the rules of the game within the organization.
And truly effective bonus systems emerge only when those two perspectives come together.
So don’t view HR as a bureaucratic obstacle standing between you and your goals. More often than not, HR is the final filter that can save the business from an expensive mistake.
Learn to balance risk
And stop trying to design a perfect system for perfect people. Build one for real people instead.
The situation: A manager decided to hire everyone on high fixed salaries with very little variable compensation. Initially, payroll costs increased. Then specialists started earning strong salaries despite delivering mediocre results. Eventually, top performers disappeared altogether. Why push harder when a comfortable salary is guaranteed? At the same time, the people who were willing to take on risk in exchange for higher earning potential simply stopped joining the company.
Some want a high guaranteed salary. Others prefer a combination of base pay and bonuses. And some are willing to work with very little fixed compensation if they believe their performance can generate significantly greater rewards.
In practice, most teams follow a fairly predictable pattern. There’s usually a core group, roughly 80% of specialists, who deliver stable, consistent results. For them, a competitive salary and a straightforward bonus structure work perfectly well.
Then there is another category of people: individuals who are willing to take on greater risk in exchange for greater earning potential. This is often the audience for compensation models built around a high variable component and a relatively low fixed salary. Working with these individuals requires very clear expectations and agreements.
As a manager, your job is not to find one universal compensation model that fits everyone. Your job is to understand what kind of people you want to attract and retain. Because a compensation system is more than just a way of paying people. It’s also a selection tool.
People don’t join companies solely because of the role, the manager, or the brand. Very often, they join because of the opportunities you create for them.
Our industry is constantly evolving and scaling. That’s precisely why bonus systems remain such a powerful and valuable tool, not only for increasing profitability, but also for motivating and retaining talented professionals. At the RedCore business group, we place significant emphasis on this area. We regularly review and refine our compensation approaches to ensure they align with team objectives, business priorities, and the unique realities of each function. This flexibility allows us to build incentive systems that serve the interests of all stakeholders, support employee motivation, unlock individual potential, and contribute directly to business performance.
And remember the principle that should guide every bonus discussion: Money for money. Everything else is expensive creativity.
Bonuses should not be paid for loyalty, effort, engagement, or simply keeping the team happy. Bonuses should be paid for results and for the value those results create for the business. A strong bonus system increases profitability, helps attract and retain top talent, protects the company’s economics, and ultimately pays for itself.
Join the RedCore team. Explore our open roles. https://link.redcore.group/4g6P1T7
Original article: https://www.yogonet.com/international/news/2026/06/30/125134-redcore-bonus-systems–diy-tool-or-a-guide-for-mature-leaders
