Awarding bonuses is something I have read much about, taught and experienced firsthand in my career.
They are almost always misused. Instead of encouraging better performance from employees the only thing it encourages it greed, lies and discontent.
Bonuses are usually paid from middle management on up, and therefore breed discontent and envy from everyone below middle management.
Because the success of a business rests upon every employee performing at their best, not just a select few.
There is now a whole industry that has been built around team building, team bonding and trust, fuelled by bonuses. This is because bonuses are 95% of the time given to individuals, not teams.
This conflict, and disconnect between performance and reward breeds nothing but bitter rivalry.
It also encourages illegal activity, such as we in Australia have seen recently with the Royal Commission into banks. The corruption that bonuses perpetuate has also been evident for a long time and played a significant role in the Global Financial Crisis.
Bonuses are mostly put in place by people who want to motivate their employees, and so they can argue for a bonus system for themselves.
If middle management are given the opportunity to earn a bonus, then surely those above them should be offered one as well! And so it goes, to the very top.
This is where the rot really sets in.
For example; there is a team of five salespeople and it is coming to the end of their reporting year. Three of the salespeople have passed their performance benchmarks but two have not, but they are not far behind.
As the salespeople get a bonus only if their overall targets are met the three salespeople who have already qualified will start to allow the credit for their sales to go to the other two. This way they have a chance of meeting their bonus targets.
It is now just two weeks from the cutoff date to achieve bonuses and one salesperson is still behind. If this remains the case no-one will get a bonus for the past twelve months work.
The senior salesperson has been keeping the Sales Manager aprised of what is going on, because of course the Sales Manager wants his/her bonus as well. They have also been getting more and more phone calls from their Regional Manager who also has a bonus, but theirs relies on the Sales Manager hitting their target.
And so it goes up to the CEO.
So in order to achieve their target, and therefore achieve a bonus for everyone, the leading salesperson goes to the Sales Manager with a proposition. What if they create a fake sale that will meet their target, and everyone elses?
The Sales Manager goes to their Regional Manager and over a coffee proposes the sales person’s idea. Because the bonuses get larger as you go higher up the corporate ladder the Regional Manager will lose far more than the Sales Manager if they just fall short.
So the Regional Manager agrees to let it slip through.
Their Manager might realise it is a fake order when it comes across their deak, but they of course approve it because they want their bonus. After all it is the salesperson and Sales Manager who will take the fall if anything happens.
And so it goes, all the way to the top where the CEO’s bonus could be worth up to a million dollars or more (disgusting but true, just read the financials of the big banks, or any of the top ten companies in Australia).
So everyone gets a bonus that year, everyone is happy…until next year.
This year has been particularly difficult, and it looks like only one salesperson will meet their target. But now they have a ready made solution, and because all levels of management let it go last year, surely they will let it go this year?
So a much larger fraud is committed, but again who is going to complain? If anyone did they would all lose their bonuses.
Although a somewhat simplistic example, this is exactly the way bonuses work. If you set a team bonus the above scenario will occur, and if you set team bonuses (sales team, regional management team, product management team) internal resentment occurs because the top salesperson earns just as much as the salesperson who is lazy and doesn’t care.
You also alienate the people in customer support, who are talking to customers all day, trying to make them happy. Surely the salespeople wouldn’t get their results without the help of customer support? And what about the staff that key in the orders, shouldn’t they receive a bonus for accuracy, because it costs the business a lot of money if they slip up?
Now you have discontent between departments.
Bonuses should be banned altogether. I believe they do nothing but create friction in the workplace and sanction greed.
In my own experience with bonuses I was awarded a trip overseas. I didn’t deserve it on my own because I had a great salesperson and also because one customer placed a huge order that year, the only year they did. What eased my conscience was that my salesperson went as well.
I also was a Regional Manager when our region won a table tennis table. I was told by my immediate boss to take it home and enjoy it. I would have loved to, but I knew it was because of the sales in our Western Australian branch that got us over the line. So I told my boss to send it to the WA office. On my next visit there they were still struck dumb as to why I would do such a thing, and sadly my response of “because it was fair” was considered unsatisfactory.
As I have said, bonuses are like a cancer to a business as they only encourage greed and false reporting. Everyone knows it, which is why my WA team couldn’t believe I had behaved fairly.
If no-one believes bonuses are fair, even if they are rewarded by one, then surely it is game over?
One final thought. If you have to offer someone a bonus to motivate them, are they worth employing?