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Are Bonuses and Incentives Loaded Dice?

dices-160005_1280When clients ask about staff incentive schemes and bonuses I begin to worry.

Bonuses and incentives are about changing people’s behaviour. Here is the rub … for every positive behaviour a business wishes to encourage through bonus and incentive schemes there are generally a number of negative ones. Be assured I have seen them in action! They can be divisive, reduce openness of communications, result in unnecessary risk taking, hide genuine business problems and probably worst of all can encourage people to be less than economical with the truth.

So the first questions that need to be asked when this topic comes up are; what changes are being sought and, whether in fact bonuses and incentives are the right option.

At the risk of being candid and controversial I suggest some bonuses and incentives represent at best management inexperience and at worst an abdication of management responsibility.

  • For example what about attendance bonuses – an extra payment for turning up to work on time. If absenteeism or late starting is an issue, is a bonus scheme appropriate? Then there is the bonus that might be cut or reduced if there has been a lost time accident – likely to suppress reporting of incidents. It may be stating the obvious but incentives to stop a negative behaviour in my book is a definite no.

 

  • So what about sales bonuses and who should be incentivised? The person that takes the sale or fulfils it. As a sale is not a sale until the money is collected, perhaps everyone in the business should be incentivised – but then is it not everyone’s job in the first place. So incentivising sales forces can become divisive and I have heard of bullying as sales people force through orders that may be too risky or not fully legitimate just to get their bonuses. Not always the best outcome for a business – ask the banks! What if the incentivised individual misses their target by a small margin – will they be motivated? By the time a business has tried to design a fool-proof scheme, which is still likely to have gaps – its merit as a motivator starts to wane. If you want a different perspective I like Dan Pink’s views which suggests for professional roles motivation is not about money provided the remuneration in the first place is appropriate. It is more about freedom to act, the chance of being the best at what you do and feeling part of a bigger picture.

 

  • Finally what about incentives to get the business out of a problem. The point here is what has caused the problem in the first place. A sales incentive scheme that has been ‘successful’ in raising sales orders that cannot be fulfilled causing a backlog and a lot of very unsatisfied customers? Underperformance of individuals or teams that has not been addressed? Lack of investment in equipment, resources or processes? The root cause needs to be identified and resolved as there is a good chance it will happen again and a bonus or incentive will be wasted money!

 

How do I advise my business clients on bonus and incentives:

  1. Think long and hard about bonuses and incentives and challenge their need.
  2. Focus on management skills in the business to deliver performance and motivation and address underperformance quickly!
  3. Ensure all the processes and resources are in place to achieve the business plan and targets set down.
  4. Engage those expected to deliver a level performance in setting the targets
  5. Invest in developing workforce skills
  6. Use ex-gratia rewards to individuals, teams and businesses where they have in the view of the business exceeded the plan – that is un-telegraphed and where there is no obligation or expectation.
  7. Rewards may take the form of financial bonuses, but do not have to – there are many other ways to reward people and motivate people.

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