What are peer to peer bonuses, and do they work?

Being recognised for a job well done is one of the most powerful motivators at work. But when that praise comes from your peers, it can feel more personal and rewarding. Especially if there’s a bonus attached.

Now, more organisations are experimenting with peer to peer bonuses as an added extra to traditional bonus schemes. Peer to peer recognition has a direct link to your bottom-line. It improves employee performance, productivity and retention.

A report by World At Work discovered that peer to peer recognition schemes have become the fifth most popular form of employee reward. Some 74% of companies considered these schemes to be fundamental to a positive work environment, high performance and a great culture.

Google’s peer to peer bonus system

Like many ideas doing the rounds in the start-up world, one of the first companies using peer to peer bonuses was Google. One of many award systems implemented to motivate employees, Google’s peer to peer bonus system involves relatively small sums (a few hundred dollars at most). However, it gives a tangible way for colleagues to recognise each other’s hard work and contribution.

In this way, activities that may otherwise have been unnoticed by managers are rewarded. Tasks like double-checking a team member’s code or helping a colleague submit a last-minute presentation.

Using an internal tool, Googlers can nominate colleagues for bonuses and a manager then reviews the submission and approves. This gives management new insights into the productivity and contribution of individual team members, as perceived by their peers.

Google has since extended its bonus system to include external contributors via its Open Source Peer Bonus programme.

Handing out Zollars

Zappos has a similar programme where employees can reward others with ‘Zollars’ (Zappos dollars) that can be cashed in for products in the company’s internal Zollar store.

Employees can be recognised for good work, active participation in meetings and training, and volunteer work.

There’s also a $50 co-worker bonus for Zappos employees who embodies the company’s core values. These individuals are nominated by their colleagues and the Zappos leadership team.

Building recognition habits

The idea behind peer to peer bonuses is to go beyond recognition. The monetary aspect is usually small, akin to tipping, but helps people to build feedback and recognition into their day-to-day.

Giving each employee a set budget to hand out to their peers (money that cannot be spent in any other way) can be a strong nudge for them to participate in a recognition programme.

Is money the answer?

There are, however, questions over whether the monetary aspect is really needed, or whether other tokens of recognition might suffice.

Robert Hicks, group HR director at Reward Gateway, argues that non-financial peer to peer recognition can be just as effective.

He says: “There has been a huge rise in the number of UK businesses giving their staff the power to hand out small cash rewards. These can be an effective method of motivating employees, but it needs to be done right. ‘E-cards’ are becoming increasingly popular and are a simple and cost-effective way for employees to take time out of their day to recognise their colleagues.”

He adds that any rewards programme has to be strongly aligned with the company mission and goals, to actively fostering a culture and behaviour that is in tandem with the company’s vision and strategy.

Other rewards to consider

Other financial benefits may offer a stronger incentive and be more aligned with longer term business goals. 

Here at Vestd we’re strong believers in the power of equity, which aligns interests like nothing else, and is proven to keep employee motivation and productivity high.

As a whole, peer to peer bonuses are not designed as a standalone rewards system or a replacement for traditional bonuses and share schemes. Instead, they can be used as a complement to existing financial rewards.

A focus on building a culture of recognition is the key thing here. As is providing the right tools to help employees and managers reward hard work.

A popularity contest

By combining peer to peer bonuses with other reward systems and culture building, you will reduce the risk of the programme being abused. Negative feedback from employees centres on the likelihood of peer to peer bonuses becoming a popularity contest.

Victoria Davies, who worked at a company that used such bonuses, told the BBC: “It’s open to abuse, isn’t it? As someone who went through popularity contests at school, it was quite weird to think: ‘Oh, do I need to ingratiate myself with people to be part of this community of tip-giving?’ It was one extra level of stress that I didn’t need.”

Unintended negative consequences

This view is echoed by Dr Monica Franco-Santos, Reader in Organisational Governance at the Cranfield School of Management. She expresses concern that organisations haven’t considered the long term consequences to their culture and organisational structure.

In particular, she believes that companies are making assumptions about the effectiveness of peer to peer bonuses. These include:

  • That performance can be measured in an accurate and reliable way.
  • That employees are unbiased and pay attention to the ‘good’ things their peers do.
  • That employees have the knowledge to be able to assess their colleagues’ performance.
  • That employees are willing to collaborate.
  • That points and money will be appreciated above any other reward.

She explains: “In the short term, companies may experience a set of benefits, including reduced administrative costs from not having to undertake typical performance appraisal processes to decide payments, improved focus and motivation from employees towards things their peers will notice and appreciate, and transformed behaviours and values.

“However, in the long term, the negative unintended consequences of this type of bonus are likely to outweigh the benefits and could end up damaging performance and wellbeing.”

But others see peer to peer bonuses as fairer than manager-based reward programmes that encourage people ‘to suck up to the boss’.

Equity-based schemes, on the other hand, are driven by a business’ bottom-line performance, where the whole team pulls in the same direction to the benefit of all.

Equity beats bias

Behaviour-based rewards have a place in modern organisations. They can offer short-term motivation, engage employees and build positive habits. However, they shouldn’t be the sole reward programme in place. There are many opportunities for bias and unfairness in the system and this can prove toxic for company culture.

Offering equity, on the other hand, will drive performance and focus efforts on your company performance and profit. This creates closer alignment with your business strategy and greatly reduces the risk of unfair remuneration.

By all means, consider peer to peer bonuses as one of many employee rewards, but don’t put all your Zollars in one wallet.