Over the past couple of weeks I’ve been privy to a number of employee bitch sessions at a company I sometimes freelance for. The subject of bonuses keeps coming up, because, to paraphrase Morrissey, some people’s were bigger than others.
Bonuses seems like such a good idea to management. After all, the company’s doing well and there’s lots of cash lying around so why not give some to the employees. They’ll cherish the cash and think we’re great guys since after all we didn’t have to give them anything besides salary. And since it’s not part of regular salary we won’t be raising our overall cost of doing business, just dispersing some cash like a dividend.
Well, it never works out that way.
First, the process of deciding who gets what becomes incredibly political as different departments vie for a limited pie.
Second, favorites are played. Don’t tell me they’re not, they are.
Third, people talk, so the results of the above items are disclosed. Also, the incentive to talk is greatest among those already disgruntled (who probably got short-changed since the unhappy are rarely the bosses favorite (see “playing favorites”, above)).
Fourth, bonuses are an ongoing cost; just try not giving them next year and see what happens.
So bonuses suck at most companies. One company I worked at did it differently.
Like many companies, they decided how much in total they wanted to give in bonuses. Then, they did something very different. They divided the bonus amount into the overall annual payroll for the business and came up with a ratio (18%, I believe). At the monthly company meeting they simply announced “It’s been a good year, so everyone is getting a one-time bonus of 18% of their annual salary.” Hugs, crying, undying loyalty ensued (maybe not).
I asked the CEO why he did it this way, wasn’t he missing an opportunity to really thank his best employees? He response boiled down to a syllogism about working at the company:
- They pay according to merit.
- If you’re an outstanding employee, you will be paid more.
- Bonuses based on salary reflect merit implicitly
And what about the laggards, who don’t work hard and still get a big bonus? “They’re fired. If we think you’re good enough to have a job then you should be good enough to get a bonus.”
Interesting, no?
See also: Joel on Software – Incentive Pay Considered Harmful