Rethink Incentives

Change what you think you know about motivation.

Happy Friday Friends,

I’ve always had an issue with bonuses. Whether I was on the receiving end of a bonus scheme or, on the implementation side.

It didn’t matter whether I hit my bonus or not, I always felt like I was being cheated somehow. If I reached the target and surpassed it, then I felt like I should have kept some in the bag for the next quarter. Or, it felt like I didn’t get paid enough. And, of course, not reaching my targets and missing my bonus was disappointing. I had done the same amount of work but sometimes there are factors that you can't account for.

Effort vs reward ratios always seemed a little inconsistent. Calling it a bonus “scheme” makes them sound a little dodgy. But that’s precisely what they are - a scheme. Some will call it an Incentive Plan - we all know what they say about putting bows on turds. Call it anything you like, but pay-for-performance models are archaic.

To get the best out of my teams I decided to rethink bonuses. And so, rethink motivation.

Carrot & Stick Models aka Reward & Punishment

Generally, organisations only see one side to the bonus incentive structure. Dangle a big juicy carrot and if the employee hits the target they get said carrot. But, what is rarely thought about is what if they don’t hit the target? It’s obvious - they don’t get the carrot. Which is then the punishment for not doing something.

Rewards for work done narrow our focus and concentrate the mind on specific tasks. For certain roles in a business, they can work well. Task-based or numbers-based roles can work with incentives. Generally, if you can attribute one input source with one outcome you can incentivise achievements with a reward. Sales, Ops, and sometimes Support teams are examples where bonuses can work.

Although, I know stories of salespeople making great commissions and they still leave the company. Why? Because there’s always someone who will pay more. There’s always a scarier monster in the jungle than you! Relying on extrinsic rewards only is risky.

Pay for Performance Models - Extrinsic Motivation

So, why were bonuses created in the first place? They originated in the Industrial Revolution. Factory workers had to perform the same task, for hours on end, day after day. The desired outcomes were binary. Every business was a production line which meant efficiency and output were paramount.

Today, we create most bonus schemes to motivate employees to strive for a goal. But, I would argue that pay-for-performance systems undermine motivation.

In fact, pay-for-performance has only been shown to work when employees are doing simple, repetitive tasks. When you want to prioritise short vs. long-term gains. When quantity is more important than quality.

Let’s not ignore that many bonus schemes can (and probably will) be cheated. If we know this happens then we need good safeguards to prevent cheating and abuse. Then we’re setting up systems to make sure people aren’t cheating the system to get bigger bonuses. And, then someone has to monitor that system. Hmmm...

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Thank you for reading,

Peace, love and growth.

Jarren

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