Bonuses: will they ever learn…?

Despite a warehouse of empirical evidence against the effectiveness of bonus-compensation (see Pfeffer & Sutton, Hard facts.., for an overview) 95% of  firms simply don’t dare to abolish the idea. Only a handful of defiant banks – e.g. Triodos and ASN – have done so successfully. They also disprove another competitive ‘myth’ that keeps their competitors  from following suit; the myth that great talents are scarce and primarily motivated by money.  There is not a shred of evidence to back this up. Rather, those who join for money, will leave for money. Among the well-off, money-motivation is a character-trait, not a general drive.

So-called performance-related pay has an abysmally bad record in fostering true work engagement, perseverance and innovative thinking. (See this entertaining line-up of the argument) The good news is, we know from research exactly what DOES foster these kinds of internally motivated behaviors! It’s a triplet of 3 core needs to be satisfied: the need for competence (working on things you are good at), relatedness (having close, personal relationships) and autonomy (freedom to choose your own tasks or procedures). Granted, it is a bit more complicated than simply using your check book.

Bonuses continue to exist due to a political game among opportunistic managers and bland boards of directors.  Politicians and regulators are misled in the discussion. They tend to parrot the fear-based rhetoric about an imminent exodus of highly talented people if bonuses are abolished. Real talent will not leave as long as the above triplet of needs is satisfied.  But until that view is established,  the next crisis, fuelled by  new bonus-induced risk-taking is already in the making.  Alas…


Comments are closed.