Some extra money can be a nice motivator for doing your work, and it has become quite normal to pay extra for reaching goals.
Even if it doesn't look that bad, it harms you and your employees.
It kills Innovation, Experimentation, and Creative Thinking
If you know that you will get a bonus at the end of the month, the quarter, the year, you won't do anything to endanger it.
Understandably. Why would you do something taking away your hard-earned money?
Let's say you are getting a bonus for solving a 100 customer calls each month. Not more, not less.
You will do everything to reach that number month after month. Focus will be that the customer is somehow happy and accepts your solution. Solving the issue sustainably for the next 100 customers is none of your business. If they don’t call, you don’t get that bonus.
And that's where the problem begins. You will only focus on the number to reach, and you will be too busy to work on the root of the issue. You have no time or interest to experiment, to innovate, to think.
And why should you? You are getting paid by the number of calls, not solutions.
Therefore, you only do what brings you closer to your goal and not what's maybe better for the company or the customer, long-term.
The Bonus is Already Spent
Employees are getting used to that bonus and already calculate how they could spend the money. They are getting entitled to the money. What could I spend next month's bonus for?
As soon as that happens, not only the "bonus" feeling goes away, thus everything good they associate with that bonus. It has become normal to receive that little extra money. People start to expect it. They start to need the money.
This behaviour can and will lead to the first issue of killing any innovation. As people rely on that money, they already have spent, they will sabotage any improvement to their system.
Because if their system gets improved, possibly their numbers don't matter anymore and therefore the bonus wouldn't be paid anymore.
Bonuses are mostly a downward spiral.
These are not the only reason why bonuses not work, but the two most important.
Instead of spending your time trying to figure out a "fair" bonus system, better spend your time figuring out what your employees really want and work on that.
Be it a regular promotion round or making the salary more transparent for everyone.