Bonuses are often intended to motivate employees to reach certain targets, usually financial ones. For example, shareholders may offer managers profit-related bonuses, where higher profits lead to larger rewards. The underlying assumption is that this will drive company performance.

There are some situations where bonuses are commonly used, such as in start-ups developing new products: when they are unable to off high salaries. In these cases, bonuses in the form of shares can help attract employees, with the potential for those shares to gain value if the company succeeds. However, this approach also means that employees’ compensation is tied to the company’s financial outcomes, which can create unequal benefits and added risks.

At Triodos Bank, we have intentionally decided to be a bonus-free bank. These are the five reasons for our approach

1. Banks are not normal companies

Bonuses are often linked to individual performance of employees. These would lead to higher profits, but therein lies a danger. It can encourage more risk-taking for better results in the short term, but this is at odds with what banks should actually do: provide stability in the long term. This stability, for example, keeps our savings safe. Too much risk in banking can cause harm to all of us, because banks play such an essential social role that society ends up bearing the costs when things go wrong.

2. No one performs alone

Bonuses are often used in organisations to reward individual performance. Research shows that individual performance can actually improve through bonuses. But there is an important downside - research also shows that team performance can actually suffer from bonuses. Consider, for example, a reduced willingness among individual employees to do tasks in the 'public interest' or to work together in a broader sense. In complex organisations (such as financial institutions), cooperation is very important. An individual bonus could then be considered not appropriate.

3. Inequality and the gender pay gap

An underexposed side of the bonus discussion: who actually benefits most from this type of variable remuneration? Research shows that women generally benefit less from bonuses. Women are more likely to work in roles where variable remuneration, such as bonuses, is less common, such as the public sector. They are also less likely to hold the highest-paid positions, and even when eligible for bonuses, women often benefit less than their male colleagues. At Triodos Bank, we want to prevent these disparities, which is why we have consciously chosen a salary system without bonuses.

4. Bonuses for more sustainability?

Could bonuses perhaps be useful to pursue goals other than profit? Not a bonus for higher profits, for example, but for less CO2 emissions? Research shows disappointing results. Sustainability goals often turn out to be quite easy to achieve, so it is unclear whether bonuses actually lead to more ambitious outcomes. They are also often relatively small compared to other bonuses, which means that sustainability does not necessarily become higher on the agenda.

Moreover, there is always a risk that these types of bonuses will miss the mark. For example, because employees then only focus on achieving a specific target and therefore lose sight of the overarching goal.

5. Bonuses are based on distrust

Finally, a slightly more philosophical argument: bonuses imply distrust. Because anyone who expects financial bonuses to lead to better performance assumes that employees will underperform without the prospect of a bonus. At Triodos Bank, we believe that people have the intrinsic motivation to contribute to our mission. A fixed salary is a way to signal that you trust your employees, that they fulfill their responsibilities to the best of their ability and are committed to the best joint team performance.

Our own practice also shows that at Triodos Bank we have no trouble attracting talent, even if we don't pay bonuses. Talented people do not appear to be motivated only by money, but are also driven by the common values we share and our mission to make a positive impact on the world.