Distribution of wealth in companies and generally money subject is equally hard and interesting. It’s hard, because emotions (mine as well) kick in pretty easily, personal biases and issues around the subject are often deep and seem to be significant part of one’s personality. And this is what makes it interesting. Bonus systems are one part of broader subject of compensation plans, but it is so popular and strong form of (de)motivating that it deserves special attention.
So.. where are we and how did we get here?
Bonus systems are quite popular for a long time. Companies try to promote productivity by promising (and hopefully granting) rewards for it. Sounds reasonable? For most people it does, and with some context assumptions it is true. Way of thinking resulting in bonus systems comes from industrial era, where lots of people were doing manual, repetitive work. People – motivated by promise of bigger reward – worked harder and/or more which led to higher production. It can seem like a good idea to use the same, production-proven method to make engineers and other mental workers think faster, harder and longer. Motivating employees with more money – concept that worked 100 years ago – is still working wonders… except it doesn’t. At least not everywhere.
Science to the rescue!
Despite all big and small problems we live in awesome times. Things that are considered ‘sure’ are getting examined to be proven sure and reveal what makes them the way they are. Mechanism of motivation is not not exception. It turned out that more money disturb people from being creative. Results like this do not get accepted fast, experiment was repeated many times in different cultures, with different amount of money. It inarguably yielded same, repetitive result: promise of more money decreases effectiveness of creative work.
… but, but …
Convincing someone that this is true is usually hard, because being presented with information so strictly contradicting intuitive and already grounded understanding of world leads to cognitive dissonance, which result (at leas at first) with denial(not that I haven’t been there). It is even harder when given person has positive experiences with bonus systems, for example was rewarded after worked very hard in the past. Key thing here is to keep broader perspective. What is overall motivational effect of bonus given to one person who deserved it, while not giving it to somebody else who also did a good job(or thought that he did)? Of course it is negative, especially if there is more than one not rewarded person, now feeling unappreciated. Positive motivational effect for rewarded employee is easily achievable with social feedback, like for example publicly expressed appreciation.
What can we do about it?
Simplest and best thing would be to get rid of bonus system in traditional meaning. In many organizations this is very hard to change, people with mandate required to make such change are often in complete denial of arguments that science presents. So if this is impossible at least minimize the damage. To do that you can try to:
- Get rid of any bonus dependent on individual or group activities that you wouldn’t do otherwise.
- Minimize bonus amount in favor of regular salary.
- Bind bonus to some factor that is not directly related to everyday day work, like for example overall financial condition of the company.
- If possible pay bonus often in small chunks, preferably every month.
- Introduce bonus system that can work, as described below.
What to do instead (bonus system that works)?
Shortly before reading Jurgen Appelo’s new book I came with simplified version of idea that is described in it, that is a bonus systems, where peers appreciate each other by distributing tokens of appreciation, like “thank you”, “good work” cards. Afterwards these tokens can be exchanged for money. This fosters cooperation, values what should really get valued, creates healthy social pressure, shortens feedback cycles and makes positive appreciation part of company’s culture, which also have positive effect on human happiness.
What aforementioned book also proposes is to have little stock-exchange-like system for counting value of each token at given moment of time. It seems like possibly nice addition, but also comes with additional costs. I would definitely suggest to start with simpler version and then possibly expand.
My experiences
There was a bonus system in every, except one, company that I’ve worked at so far. Unfortunately none of these was this nice modern system, quite the opposite, all of them have been industrial era classics. They have been generous for me, usually I got good cut of what was there to be taken. They also made me lose focus and work on something that I agreed to do to get them instead of what was the most important and beneficial thing at the moment. Except of my first job I reported on this to managers who were responsible for evaluating my progress. They didn’t see anything bad with it. It means that I’ve been rewarded for deliberate waste, that was accepted by people who rewarded me. So far, despite my tries, this is the case in place where I work now as well. I don’t like this and I hope to change this. Brace yourself, another battle is coming 🙂