Big Bonuses—Good For Driving Everyday Performance?

bonuses for employees

Do big bonuses drive performance and behavior in general?  I’ve always broken this question up into two camps: the sales and non-sales camp.

First, the easy one—sales.  We can split hairs and argue whether commission to salespeople is a bonus or part of an incentive plan that’s expected, but isn’t that what bonus plans are supposed to do—drive behavior?  For me, the sales angle is the purest play in bonus and incentive pay.  You make enough sales, you get paid for your performance, usually monthly, which is also key.

The harder call for me is for non-sales positions.  A big bonus is certainly attractive and desired by all of us in the workforce.  The real issue for me is the timing of the bonus and how the plan is structured.  Is it monthly, quarterly or annual in nature?  My guess is that most companies still work on the concept of the annual bonus, and most let company performance drive the majority of the payout.

A focus on an annual payout, based on company-wide performance, seems pretty macro to me, meaning while it’s expected and desired, it may not drive day-to-day performance of non-sales types, with the exception of causing employees to be careful spending money.

More from Paul Hebert at Symbolist:

“Here’s the Symbolist spin—if the bonus is sufficiently large, participants in the program will behave in a way that reduces their risk of failure thereby reducing their desire to work in a way that might cause that failure.  In other words they start working much more “safely.”  They start to think about each individual step in the process, instead of getting into the “flow” of the process where work becomes fluid and easy.  Too big a bonus and the idea of trying something “new” goes out the window in favor of the tried and true.  A pretty big problem today where innovation is the new black.

Therefore, if the bonus is big enough, the participant actually increases their chance of missing the goal by increasing their focus on not failing.  Counterintuitive, eh?

The key point in this is that there is a balance between the objective and the reward.  We need to look at business performance problems from a behavior point of view and not a results point of view.

Break down the chain of behaviors that lead to a result and rewarding ongoing mastery of the few important behaviors in that chain – with smaller, more frequent rewards.  This will allow participants to focus on those important few things.

I agree with Paul’s analysis, and think the best thing to do to truly engage non-sales professionals with a bonus program is to make it monthly in nature.  That would keep everything laser-focused.

Of course, the reason sales commission can be monthly is because it’s the one area where performance is unquestioned.  You either made the sale or you didn’t.

Measurement can be very messy for the rest of your key spots in the company.  The one set of numbers that never lies for the rest of the company?  Revenue and cash flow.  The combination of measurement being problematic and revenue and cash flow being king means the annual bonus is probably here to stay for the rest of us.

FOT Background Check

Kris Dunn
 Kris Dunn is Chief Human Resources Officer at Kinetix and a blogger at The HR Capitalist and the Founder and Executive Editor of Fistful of Talent. That makes him a career VP of HR, a blogger, a dad and a hoops junkie, the order of which changes based on his mood. Tweet him @kris_dunn. Oh, and in case you hadn't heard the good word, he's also jumped into the RPO game as part owner of a rising shop out of ATL, Kinetix. Not your mama's recruiting process outsourcing, that's for sure... check 'em out.

5 Comments

  1. Ed says:

    This is a tricky topic Kris and I’ve been struggling with it in my current role. Almost every for-profit company in the world (including my current employer) believes in carrot motivation, yet there is a lot of science that suggests “that just ain’t true”. Check out this youtube video of Dan Pink from more than a few years ago. Hard to counter his argument, and yet I haven’t been able to convince any breathing capitalist that it isn’t pure BS. So, Paul what’s your take? Do you buy the candle problem argument and the science that suggests that performance on tasks requiring even limited cognitive thinking is hampered by traditional incentives? http://www.youtube.com/watch?v=rrkrvAUbU9Y

    Reply
  2. Hey there! I’ve been reading your website for a while now and finally got the courage to go ahead and give you a shout out from Austin Texas! Just wanted to say keep up the excellent work!

    Reply
  3. Ed says:

    Thanks Paul!

    Reply

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