Know Your Objective

It's critical to determine how the bonus you're awarding supports what you and your company want to achieve, says Susan David, a psychologist at Harvard Medical School and the author of Emotional Agility: Get Unstuck, Embrace Change, and Thrive in Work and Life. "If your goal is to motivate, you need to assess what the risks are to your game plan if you give a bonus to recognize outstanding work performance to only one person on the team versus everyone who participated," she says. "Those who do not receive a bonus may feel demoralized, less motivated, and unfairly treated, and, consequently, they may undermine your goals."

Know Your Culture

Many organizations pride themselves on creating a collaborative culture. But, says David, bonuses have the potential to unintentionally trigger a disconnect. "If you tell your employees that you want them to embrace teamwork, but then reward your work force based on what they accomplish individually, you've undercut your message," she says. "In all likelihood, the consequence will be that employees who want to be considered for a bonus may no longer want to perform or support 'unseen' collaborative work, which, despite what the company posits, goes unrewarded."

Know Your Real Motivators

Bonuses can be attractive motivators, but they don't necessarily keep employees inspired. Research conducted by David at a global professional services firm's "hot spots"--thriving, high-revenue hubs whose hallmark is collaboration and engagement--revealed that relatively few people brought up pay or bonuses as job stimuli. "They felt challenged, enjoyed going to work each day, and experienced a good sense of community with their colleagues," she says. "The participants' overriding comment was, 'My leader sees me and treats me like an individual.' " Without this foundation, David says, the only way companies may have to retain their talent is forever upping bonuses.