Big Bonuses - Good For Driving Everyday Performance?

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 Incentive Intelligence:

"Here's the I2 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....

Comments

[Paul Hebert]

Here's a thought...

Are bonuses and other incentives paid monthly/quarterly/annually because the financial reporting system defaults to these time frames? My guess is - yep.

Not unlike the fact that railroad rails are spaced based on the width of a Roman chariot...google it - it's true.

I suggest in most of my client meetings that we forget the way things are currently reported through the financial system.

Worry about the goals and the behaviors. Technology is cheap enough today to create a tracking a reporting (and payout) system that ties to the program/initiative and not to an outmoded constraint that may actually limit your ability to create the BEST program.

[Chris]

Wow, I'm feeling baited by this one... more to come but first, personally speaking (n=1) I have reduced my efforts at work in response to an announcement by our CEO at a company-wide meeting in Nov that we would likely not meet budget for this fiscal year and therefore it would mean no bonuses (as opposed to cutting programs, staff, etc.)

Now, I wonder what the research says...