It would appear that Very Large Bonuses Attract – Very Greedy People. Now if experience tells us this is so (and certainly Alfie Kohn’s research showed that one thing that bonuses and other rewards don’t do is to lead to long-term improvement) how should we read the statements that have been made by the top British Institutions that if they don’t pay large bonuses their top earners will go and work for European or American Companies. Put these two ideas together (Greedy People and Go Elsewhere) and a super strategy for British Companies would be to – wait for it – stop paying bonuses. Bonuses might attract top earners but experience (with the credit crunch etc) is telling us that these top earners do not benefit their organisations IN THE LONG TERM (and therefore do not benefit any of their stakeholders in the long term either).So are there some British Companies out there brave enough to stop paying ‘performance related’ bonuses and to see what happens? The consequences could be very good! Not a loss at all but a gain. All the greedy earners who don’t care a stuff about the customers, will go to the competitors (hooray I hear from all those people who have suffered from all this miss-selling), leaving space for a new type of entrepreneur to take up these jobs within companies – (those with an innerpreneur mindset). Would not it be good for the long-term success of financial institutions for example if all the work was done by employees wanting to do the very best they can to give good service for past, current and future customers. Unfortunately as Kohn showed many years ago, big ‘carrots’ move the focus away from the service. The focus in the bonus culture is “what do I need to do today to make my carrot bigger (and also give me bragging rights to the biggest carrot)”. The focus should be of course be “what do I need to do today to really help my customer?”So should not our politicians be suggesting that bonuses simply STOP in order to make our Institutions better? This then leaves one question. If such an organisation goes on to make increased profit in a ‘no bonus for performance’ model, how do all the employees get to share in this success as an intended consequence? (Answers not on a postcard, but please post your suggestions here) What is a fair way to keep the focus on customer service, and to share in the benefits that accrue from being a truly long-term customer-focussed (as opposed to a bonus-focussed) company?
Peter Scholtes (The Leaders Handbook) suggests the following non-capricious factors on which to base a pay system:1. Market rate2. Tenure or seniority. Unfortunately, in the UK at least, making decisions based on length of service may fall foul of the 2006 Age Regulations. However, I haven’t as yet seen a tribunal ruling on this.3. Profit sharing
I believe you miss the point here. A large bonus attracts many people both good and bad. The problem lies not in the bonus but in two things:1) The type of person you choose from those who apply (no-one forces you to employ the one who thinks only of themself).2) The outcome for which you pay the bonus. (If you ask someone to cut costs by 2M this is what you will get. If this is not in your company’s best interests then you should not have asked for it in the first place!).In other words, be careful what you wish for, take responsibility for your own decisions, and don’t shoot the person who delivers your vision when you realise your vision was wrong.RegardsThe Enterprising Architect
Absolutely spot on Barry.Stop the bonuses then the people motivated by short term personal gains will be less attracted and we open up the possibility of employing people in the top jobs who actually care about the long term health of the organisation, and the employees.The answer to the second question, how do we then reward the employees, is in a way contained in the first.If the CEO is not primarily motivated by short term personal gain, what is he motivated by?The answer to that is the answer to both questions.Everybody is motivated by pride, the desire to do a good job, to make a difference, to be recognised for the value that we create.This applies equally to the CEO and the workforce.The mistake is in assuming that we will have to find a different way to reward the workforce.When the CEO stops been driven by short term rewards their is every possibility that the workforce will also stop being obsessed by monetary rewards.They will revert to their normal intrinsic motivators, independent of the assumed need for extrinsic rewards.If after getting rid of the reward driven CEO we then start to drive the workforce with short term rewards for their efforts, it should not be much of a surpise if they start to exhibit the same problems that concerned us about the behaviour of the CEO.Peter A Hunterwww.breakingthemould.co.uk
JonThank you for your comment about my blog on what do large bonuses attract.I do actually agree with you that a certain job of work which may have bonuses attached to it can attract many people both good and bad.If as a youngster I had seen a job that looked really interesting and would utilise my skills the fact that part of the pay structure was bonuses would not have stopped a good guy like myself applying for and taking on the job. Where perhaps I did not make my point clearly enough is about what happens next.OK I am working in financial services last year selling sub-prime mortgages (or even just mortgages). I’m a good guy I want to help people and I am not working for the bonus. However many of the clients I get to see I don’t think are suitable for what I am selling, so I don’t sell many mortgages, so I don’t get a bonus, indeed I am being sent to what I consider non-suitable clients by my boss who seems to be putting me under pressure to close deals (could he be on a bonus as well?) so I am not happy and I am looking for another job. Joe Blogs however is loving the job, he has that thing could ‘charm’ and he closes every sale and he is competing with his brother Fred Blogs to see who can get the biggest bonus this month. Cue credit crunch and many many sad people losing their homes.Of course they should have known better?Do you see my point? It is the BONUS that drives the inappropriate behaviour and selects out (over time) those that are focussed on closing sales and getting bonuses to the disadvantage of those that are focussed on providing a humane considerate service to their clients – their fellow human beings
The fundamental of the word bonus have been forgotten. It is derived from the Latin word for good. The practice of paying bonuses is a management fad that has grown out of the idea that people can be incentived to work harder and better by being paid for performance. Arguably sound in theory, the practice has been subverted by:a) The failure to link the rewards properly to corporate performanceb) The shift away from making it a true incentive to a de facto lump sum entitlement that forms a part of an earnings package. This has developed from the need to keep pace with the (self-stimulated) market whilst not provoking shareholder outrage, and to offset the delusion created for shareholders that executives have taken lower salaries but need to be compensated more for “sharing the same risk.”It is easy to point fingers and accuse executives for being greedy, but humankind is by nature competitive, and the scale of reward is always likely to proliferate, when benchmarked against peer earnings.The solution is actually quite straightforward and one that I have been promoting for some time time. Viz1. Recognise people as the assets they are and put them on an internal balance sheet at their personal valuation.2. Balance the addition of Human Assets on the balance sheet with a Capital reserve called Human Capital, and make this a part of Owner’s Equity, thereby making the employees co-owners of the business for the cost of a single journal entry (and without the complexity of share purchase programmes.)3. Eliminate all existing incentive remuneration and instead distribute a share of profits or net income improvement across the organisation as a “labour dividend” based on the individual’s personal asset value.4. Measure the human contribution to the business through the new standard KPI of Net Income/Human Assets.The benefits of such a proposal are:1. It eliminates all the conflict inherent in traditional incentive remuneration schemes, as well as a large number of their shortcomings.2. It recognises that any organisation is a team and that its results are driven by the collaborative efforts of every single member of the team, and it compels the strategic alignment necessary for sustained success.4. It provides a transparent reward system that is consistent, equitable and fair and cannot be easily manipulated.5. It creates a platform for greater employee engagement.6. It significantly reduces the short-termism of current business practice and makes both managers and employees alike more concerned about the long-term viability of the business, and thus more likely to safeguard investors’ interests too.7. It counters the widening gap between executive management earnings and the rest and thus reinforces the collaborative spirit needed for ongoing success.
I always laughed to myself when I heard some captain of industry speaking in the media, use the threat that the ‘best people’ would simply leave the country if they weren’t paid obscene bonuses. If we substitute ‘criminals’ for ‘best people’ (a subtlety not far from the truth) then the argument becomes a no-brainer.When will the majority of people realise that the Emperor is flagrantly parading himself in the media whilst stark, staring naked?
Ivor,Love what you are saying about the ‘best people’. Would it be unkind to wonder whether they are only the best people at getting high salaries, stock options and big bonuses?