Comments on Doc On Dev: What are you rewarding?

The basic assumption is that the "bonus"...

2010-12-21T21:09:56.416-05:00

The basic assumption is that the "bonus" is based on an individual's performance and is based on a cash payment. Bonuses can be tied to company profitability. Say the company generates a big profit. They look to invest it. What better way to use that profit than to reward employees. Of course this is a very simple example. Also you can reward people in other ways than cash payments like: paid time to just play, new bigger monitors, or other rewards that are valued.

"There is no doubt that sticks and carrots can be badly used. They can encourage risky behaviour, as they have in the banking system, or persuade policemen to focus on minor traffic infractions rather than violent criminals, as they have in Britain. But properly managed they can be immensely powerful tools for boosting productivity and attracting the right people." http://www.economist.com/node/15269569

Reading the comments on the above article, you'll see that there is not universal agreement on Dan Pink's position. http://www.economist.com/node/15269569/comments

The study also doesn't take into account the type of incentive plan. Of course bad incentive plans can create bad behavior. As the above article states, good incentive plans can be effective.

As with all "studies" you can skew the results a certain way by choosing what to focus on. There have been many studies that say Cleveland is one of the worst places to live and others that say it is one of the best. It all depends on what you focus on.

Again, it comes down to the fact that there are no hard and fast rules. Each company must decide what is right for them. No bonuses may be the right thing for LeanDog, but may not be right for another company. If you do have bonuses, you do have to be careful how they are administered.

I have to agree with Mike K, as a business owner I...

2010-12-21T20:23:59.924-05:00

I have to agree with Mike K, as a business owner I much prefer a well designed bonus structure to salary increases. They leave the firm in a much more agile financial position while still recognizing and compensating the employees for their contribution to the firm's success.

The best bonus program I was ever involved with was as an employee. The structure was exceptionally simple and tied to the most important of all corporate metrics - net profit. Everyone in the company had an influence on the number, either by increasing revenue or decreasing costs. The distribution of the bonuses was based simply on tenure - the longer you'd been with the company, the higher your bonus. This recognized that current year net profits are not simply based on current year efforts - but upon the entire lifetime of the firm. Those that have contributed longer deserve a higher compensation. The entire company working together towards a single metric - with no internal competition had the added benefit of some significant team building - even across what had once been competitive departments. Out of that came some fantastic ideas that helped reduce overhead moving forward and have continued to benefit the company to this day.

I agree. I sent very controversial feedback regard...

2010-12-21T19:42:27.912-05:00

I agree. I sent very controversial feedback regarding the bonus program I last encountered.

This year as a result of great results, Starbucks paid a cash reward (1 time) of the same amount to every eligible employee from Baristas up. THAT is how to share a great year with the staff and I think it was wonderful.

Other good uses of money that I've seen are to support employees in getting training and going to conferences with reimbursement and educational funds. I think matching gift programs for charity are also great!

Another issue with bonus programs is they are usually based on a percentage of pay. That means the are disproportionately given to those who already make the most. If there is an inequality due to looks, gender, weight, negotiating skill, wages when hired, or even height (They've proven that each inch above average a man is pays a certain amount of salary) it just compounds the problem. At least equal AMOUNTS paid out to each person in a bonus is good.

While many bonus programs bother me, profit sharing never ever does. Profit sharing is when a company does well, and as a result they share some of it with employees.

"As long as the task involved used only mecha...

2010-12-21T19:27:50.804-05:00

"As long as the task involved used only mechanical skill, bonuses worked as expected; Higher Pay = better performance. Once the task called for rudimentary cognitive skill, a larger reward led to poorer performance."
http://www.youtube.com/watch?v=u6XAPnuFjJc

"Second, envy and comparison of bonus pay led to increasingly
aggressive behavior in investment banks."
http://www.hbs.edu/research/pdf/11-056.pdf

I have to disagree with the inferrance that all bo...

2010-12-21T16:48:16.253-05:00

I have to disagree with the inferrance that all bonus programs are bad. Like most things, hard and fast rules are often a mistake. Of course the bonus program you describe did lead to gaming the system and was a bad program, that doesn't mean all bonus programs are bad. As with many software projects, there are a lot of bad bonus programs but there also some bonus programs that are very good. Don't throw out the baby with the bath water!

My wife is a compensation professional and she's given me a whole different perspective on compensation issues. Bonus programs can be developed to reward people in a productive and valuable way. One problem is that a lot of people don't understand how to structure a bonus program because they are not trained in doing so. It's like having people do agile development or writing story cards without any training; you will likely get a poor result. It's very common to add text to the effect of "if you cheat, you get fired" to bonus programs to reduce the likelihood of gaming the system.

A reason to use bonuses instead of salary increases is that salary increases can not fluctuate with business conditions whereas bonuses can. By increasing base pay, you lock the company into higher fixed costs, which can cause a business to lose money if revenue drops. Bonuses allow a company to better deal with that situation as well as increase compensation when revenue exceeds targets. Also the trend in compensation is moving towards more variable pay and less fixed pay.

My advice is to get someone trained in compensation to create a valuable bonus program that fits business needs without causing negative long term business consequences.

Getting a raise or bonus is nice, but I end up wor...

2010-12-21T15:25:06.652-05:00

Getting a raise or bonus is nice, but I end up working way too many hours and need to focus more on myself and what I want to work on. There are too many variables in the workplace that affect the results. Give me 4 day work weeks and I'll let my personal results yield greater returns.

About possible working bonus systems, imo there ar...

2010-12-21T03:49:03.322-05:00

About possible working bonus systems, imo there are only very few that can work. I'd stay with raising the salary as a bonus.

I know one privately owned (middle sized) company in Finland that has a simple bonus scheme - distribute 10% of yearly earnings evenly with every employee of the company. Everyone gets the same bonus and everyone is thus aligned to work towards the same goal. Simple and brilliant. But try to get that through in a public company...

I agree 100% on the statement that the metric beco...

2010-12-20T13:18:44.358-05:00

I agree 100% on the statement that the metric becomes the target. This is not good. And you are right, most often the best teams "miss" the target.

But many companies also base the bonus on overall company performance. So if the company has a very bad year, the bonus is not given. Lets say your team was not related to the company's poor performance, how do you continue to pay the "the raise that lasts forever?" Do you take away the raise?

You need to make bonuses tied to the actual perfor...

2010-12-20T12:24:17.258-05:00

You need to make bonuses tied to the actual performance of the company. We coach aligning daily, weekly, monthly, and yearly around safety, quality, productivity, human development, and cost. Targets are generated around these objectives and bonus are awarded on hitting (or coming within a certain percentage of hitting) the targets.

If your targets aren't meaningful - the bonus program will fail. If the metrics give you a pulse for the organization on a daily basis and folks are aligned around those targets proactively (monthly and yearly as well) - you're bonus program can be successful for everyone.

Steven Leuschel
Coach
KCOE