Engagement bonuses: smart incentive or fatal flaw?
Putting engagement on exec scorecards can drive attention and action. It can also warp behaviour and turn surveys into theatre. The trick is knowing which way your culture will break.
Let’s talk about one of the more fashionable corporate ideas of the last decade: “Let’s put employee engagement into senior leaders’ bonus scorecards. That’ll fix it.” On paper, it sounds glorious.
If the C-suite’s pay depends on how much employees “agree” with the statement ‘I would recommend my employer as a good place to work to friends and family’, then surely leaders will magically become more human, more caring, more accountable… right?
Or (and hear me out) they’ll just learn to game the survey. Here’s what’s really going on.
What’s the actual concept?
Most organisations use some form of engagement score - usually a composite score built from survey questions about pride, advocacy, and discretionary effort. So far, fine. The next step is where things get spicy: boards and RemCos start asking: “If engagement is so important, why isn’t it in the bonus plan?”
You can see the logic:
Engagement is linked to performance and retention.
Execs care deeply about bonuses.
Therefore, add engagement to exec scorecards and, as a result, execs care about engagement.
And this is happening. The CIPD has reported how growing boardroom interest in using employee metrics (including engagement) to inform CEO and Exec pay. Governance groups like the US-based National Association of Corporate Directors and others have promoted including engagement or EX metrics in executive goals as “the next frontier” of performance-linked pay.
In practice, you get a weighted target like: “10–20% of annual bonus based on improvement in engagement index / people score”. This is sometimes mirrored one level down (C-suite-1, senior managers). And, occasionally, some companies push the concept all the way to line managers (“your team’s engagement score affects your bonus”).
Why it can work (in theory)
Let’s give the idea its due. There are real upsides.
1. It forces leaders to take people seriously
Behavioural science 101: what gets measured (and paid for) gets attention. If engagement is just a slide in the annual HR deck, leaders ignore it. Put it in their bonus, and suddenly they know the survey launch date by heart.
2. It legitimises the so-called “soft” stuff as hard performance
Linking pay to people metrics sends a signal: “How you lead matters as much as the numbers.” That can shift conversations from “hit the quarter, whatever it takes” towards “hit the quarter without setting the place on fire.”
3. It can reinforce the link between EX and performance
Ipsos Karian and Box’s work on employee experience shows that better EX correlates with better commercial outcomes - higher revenue, stronger retention, more discretionary effort. Tying leader rewards to engagement can help anchor that link in day-to-day decisions – leading to fewer stupid policies, more attention to workloads and better-quality managers.
4. It can trigger real conversations about leadership behaviour
When leaders know their bonus is partially riding on whether employees think they’re competent and human, you sometimes get more listening and fewer “command broadcasts”. So yes, done well, engagement-linked pay can act as a behavioural nudge, reminding leaders that people are not just cost lines.
But… and there’s always a but.
The dark side: how leaders game the system
The problem with tying big rewards to survey numbers is simple: If you pay for a number, you’ll get a number. Not necessarily the reality behind it. There is a very long literature on the “unintended consequences” of performance targets and metrics - gaming, manipulation, distortion of effort. Engagement isn’t magically exempt.
Once leaders realise a few points on the survey equals real money, you get behaviours like:
1. Survey coaching (a.k.a. “remember, this is about the company, not your manager”): Managers run pre-survey meetings where they:
“remind” teams how much progress has been made,
subtly signal that “we’re all being measured on this,”
imply that low scores could hurt investment / jobs / team reputation.
Congratulations, you’ve just converted a listening exercise into a loyalty test.
2. Questionnaire redesign as score inflation: Miraculously, the year engagement goes into the bonus plan: question scales change, questions become more ambiguous and less likely to lead to negative feedback. Worst of all, some try to move ‘Neutrals’ into the ‘Positives’ column (“What would our engagement score be if we counted all the ‘neither agree nor disagree’ as favourable?” – Yes. That was a real question asked of me years ago by an ever-so doe-eyed innocent CPO. I think you can guess at my answer. Ehem).
3. Targeting the score, not the cause: Instead of fixing workload, bad processes, or useless leaders, organisations throw (comms campaigns, engagement “sprints”, feel-good events in survey month). It’s cheaper to run a pizza day than redesign a broken operating model.
4. Silencing dissent
If low scores hurt pay, low scores are framed as disloyal, “unhelpful,” or “not in the spirit of our values.” Employees learn the lesson quickly: don’t criticise, don’t be honest and definitely don’t write anything real or problematic in free-text. Your engagement survey is now a fear barometer, not a feedback tool.
The behavioural science problem
From a behavioural perspective, engagement-linked pay is classic Goodhart’s Law in action: “When a measure becomes a target, it ceases to be a good measure.” Engagement scores are indicators, not outcomes. When you weaponise them, you alter the very behaviour you’re trying to observe.
Research on performance target systems repeatedly shows:
increased gaming
short-termism
narrowed focus
ethical corner-cutting when high stakes are attached to single metrics.
Employee engagement is particularly sensitive because it’s self-reported and highly context-dependent. Incentivise the number, and you corrupt the signal.
So… should you do it? Maybe. But only if:
The weight is modest (a nudge, not a gun to the head).
Leaders are incentivised on actions and system changes, not just the score.
Survey design and analysis are kept independent and protected from exec meddling.
Qualitative feedback and hard business outcomes carry more weight than a single index.
Boards explicitly watch for gaming signals and treat them as a governance failure.
And even then, remember: Engagement targets in bonus plans can encourage better leadership. They can also expose who never cared until cash was on the line. If your C-suite only discovered “the importance of listening” the year their bonus depended on it, the engagement score isn’t your real problem.
Your leadership is.