It is bonus time again, approaching Christmas. Many businesses have some sort of bonus scheme that matures at this time of year and are wondering if it is worth the effort.
Does it give you a return on the investment of time and money, or is it just an expected part of employee’s salary? Does it have the potential to result in disgruntled employees when they do not get as much as they expect or think they are worth, or worse, are angry that someone has got more than them?
Both are very common problems.
Conceiving and managing a bonus scheme is a really tricky management challenge.
We tend to give bonuses with little consideration of the psychology behind what makes them work, under what circumstances and in what contexts. We tend to take the easy way, which is just to tie it to a combination of increased revenue, some dodgy assessment of performance done by the manager, and profitability.
If you have a bonus scheme and want to see how they work best, go down to your local club that has pokies, and observe those playing. Compulsive, repetitive, continuous, despite knowing in the long term they cannot win, but the short term, they just might. This is the sort of behaviour that if mirrored in your business may be very productive in the short term, and destructive in the medium to long term.
Context is very important. For tasks that are repetitive, often referred to as ‘left brain’, financial rewards do increase productivity. Conversely, once an element of ‘right brain’ the source of critical thinking, creativity, nonlinear outcomes is required, financial rewards not only do not increase productivity, but they can impact negatively.
A bonus scheme that acknowledges these differences, and delivers has five parameters you need to consider, and work with to produce the best combination for your circumstances:
- Type of bonus. Money or in kind? Money is usually the default, but in kind can be a powerful motivator, and is less likely to be dismissed just as part of the salary package. You could offer a dinner out with their partner, gift vouchers, a cruise, some local adventure, there are many and varied options. Most will be more effective than just money in most circumstances.
- Eligibility. Who is eligible, how is the eligibility for the bonus to be measured, collated and communicated? Is it for the individual, the work group, or whole company, is there a qualification period, is it the same for everyone irrespective of rank, or is it on some sort of sliding scale? A field of landmines to be navigated in making those choices.
- Measurement. Is the measurement quantitative, qualitative, or a combination of both? What are the administrative processes that will manage them, and keep it consistent? How transparent will the results be?
- Frequency. What is the frequency of the bonus? Is it monthly, quarterly, annual, on an agreed timetable, or are the time lapses between bonus occasions random, as are the rewards you get out of a poker machine?
- Reward type. Are the rewards themselves random, or against a sliding scale of value. Usually this will be cost, but when giving in kind bonuses, what is value to one person may not be to another. For example, a former client who was an avid racing enthusiast offered time in a go cart in the west of Sydney as a bonus. To several of his employees, the thought of racing a go cart was as far from a bonus as they could get, the thought of winning was a disincentive.
There is a huge body of psychological evidence underpinning the drivers of behaviour, and we are learning more every day. The best known are Ivan Pavlov, who recognised in the late 1800’s that specific behaviour can be stimulated by a cue that the ‘subject’ associates with the behaviour. You see this every day, as people respond to such things as a ringing in a theatre to announce the end of interval, the traffic lights at the end of your street, and so on. It is a learned behaviour in response to a cue. The second is B.F. Skinner, who in the 1950’s recognised that variable rewards were more powerful than those that were known, aka, the poker machines. More recently, Daniel Pink has written extensively about the mismatch between what science knows about motivation, and what business does.
Header credit: Once again, the wisdom of Dilbert graces the header. My continuing thanks to Scott Adams for creating the cartoons that explain my thoughts.
