Bonuses in a post-GFC world?


Artist Guy Maestri doesn’t take commissions, as he finds them constraining.

“I find that before you start there’s an anxiety about what you’re doing and that can come through in the work,” he says.

“If you do embark on one, it’s very hard to be motivated, as opposed to the motivation that comes from an idea that you want to work with and something you’re chasing and interested in.”

It’s not just artists who aren’t always motivated by the prospect of money. The possibility of a bonus can dampen creativity, some say. Incentive schemes can also skew a worker’s performance, causing them to concentrate on reaching the KPIs to earn the bonus, to the detriment of their wider job and teamwork, critics say.

Bonuses have come under scrutiny following their role in causing the global financial crisis yet continue to be an important feature of remuneration in Australia, and perhaps surprisingly their use has increased in the wake of the GFC. Dan Pink, the author of Drive: The Surprising Truth About What Motivates Us, argues that bonuses do not motivate people.

Three types of motivation:

  • Basic biological needs such as food and reproduction.
  • Extrinsic motivation such as money, rewards and recognition.
  • Intrinsic motivation, which involves doing things because they interest us and we find it meaningful.

Pink says intrinsic motivation is the most effective, but it’s usually overlooked when companies try to motivate staff with bonuses, which rely on extrinsic motivation. This doesn’t mean that people don’t care about money, says Pink. “In many cases the best use of money as a motivator is to pay people enough to take the issue off the table.”

“It turns out that over the long haul for the more creative tasks, paying people enough and providing autonomy, mastery and purpose is far more effective than large bonuses for short-term behaviour.”

“What individual bonuses do is they sometimes lead to behaviour that is good for the individual, but not necessarily good for the company.”

As routine tasks are taken over by automation and roles become more complex, innovation is increasingly important, but Pink says bonuses inhibit creative thinking.

“If I say to you, ‘if you do this then you get that’, then I’m trying to control your behaviour, and human beings have only two reactions to control – they comply or defy.”

“With every incentive program we put in place now, the first section has to be a refutation of Dan Pink,” says Jairus Ashworth, a managing principal and leader in reward practice at Aon Hewitt.

Ashworth believes bonuses can be effective, with several reasons why a company will offer them: to motivate individual performance, to share in company performance, and to drive strategic priorities. He rejects Pink’s argument that bonus schemes produce perverse outcomes and stifle creativity but says they have to be well designed.

The skill lies in correctly aligning an incentive plan with the company’s goals. Things such as teamwork and information sharing can be measured by managers who have been supplied with observable examples of what comprises those behaviours.

“A performance management incentive system that tries to look at things in a one-dimensional way can be too focused on the goals of the incentive plan and not the broader context,” he says.

“If organisations only rely on their bonus or incentive program to drive motivation, then that’s not going to be effective and it’s not going to be a very exciting or attractive place to work, says Garry Adams, business leader for human capital at Mercer.

“Most people come to work in order to work hard, do the right thing and enjoy their work because they value what they do,” he says.

“However, we also use incentive plans and other extrinsic rewards to thank people for the success of the organisation and their contribution to it.”

Case study: Perpetual

Leaders at investment company Perpetual believe the company’s bonus scheme is key to helping the business meet its profit targets. Each of Perpetual’s 1000 staff – from the chief executive down – is eligible for a bonus.

“We take the view that bonuses do help motivate employees to make the discretionary effort for the company to meet business objectives,” says Greg Kiddle, general manager, remuneration and benefits.

“What we feel is that appropriately recognising and rewarding high performers motivates staff to improve performance and gives a positive reinforcement of the attitudes and behaviours that distinguish high performers from low performers.”

The setting of performance measures begins with management and the board agreeing on the company’s annual objectives. This is then broken down into performance objectives for company divisions and ultimately each individual. Performance is measured on a bell curve and around 90 per cent of the staff typically earns a bonus. Perpetual also tries to stop staff skewing their work so they can meet the key performance indicators that will earn them bonuses to the detriment of other core functions via the implementation of ‘hygiene factors’.

“They’re things that you’re expected to do in the role to a certain acceptable level in order to fulfil that role,” he says.

Before anyone can be eligible for a bonus, they have to meet their hygiene factors. Once they have, meeting their performance measures will determine whether they get a bonus and its size. So, an employee could meet the performance measures that would their bonus, but if they failed in the core competencies of their role, miss out. Does the bonus system stifle creativity? Kiddle believes the culture of an organisation and whether it encourages creativity is more important than bonuses.

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Bonuses in a post-GFC world?


Artist Guy Maestri doesn’t take commissions, as he finds them constraining.

“I find that before you start there’s an anxiety about what you’re doing and that can come through in the work,” he says.

“If you do embark on one, it’s very hard to be motivated, as opposed to the motivation that comes from an idea that you want to work with and something you’re chasing and interested in.”

It’s not just artists who aren’t always motivated by the prospect of money. The possibility of a bonus can dampen creativity, some say. Incentive schemes can also skew a worker’s performance, causing them to concentrate on reaching the KPIs to earn the bonus, to the detriment of their wider job and teamwork, critics say.

Bonuses have come under scrutiny following their role in causing the global financial crisis yet continue to be an important feature of remuneration in Australia, and perhaps surprisingly their use has increased in the wake of the GFC. Dan Pink, the author of Drive: The Surprising Truth About What Motivates Us, argues that bonuses do not motivate people.

Three types of motivation:

  • Basic biological needs such as food and reproduction.
  • Extrinsic motivation such as money, rewards and recognition.
  • Intrinsic motivation, which involves doing things because they interest us and we find it meaningful.

Pink says intrinsic motivation is the most effective, but it’s usually overlooked when companies try to motivate staff with bonuses, which rely on extrinsic motivation. This doesn’t mean that people don’t care about money, says Pink. “In many cases the best use of money as a motivator is to pay people enough to take the issue off the table.”

“It turns out that over the long haul for the more creative tasks, paying people enough and providing autonomy, mastery and purpose is far more effective than large bonuses for short-term behaviour.”

“What individual bonuses do is they sometimes lead to behaviour that is good for the individual, but not necessarily good for the company.”

As routine tasks are taken over by automation and roles become more complex, innovation is increasingly important, but Pink says bonuses inhibit creative thinking.

“If I say to you, ‘if you do this then you get that’, then I’m trying to control your behaviour, and human beings have only two reactions to control – they comply or defy.”

“With every incentive program we put in place now, the first section has to be a refutation of Dan Pink,” says Jairus Ashworth, a managing principal and leader in reward practice at Aon Hewitt.

Ashworth believes bonuses can be effective, with several reasons why a company will offer them: to motivate individual performance, to share in company performance, and to drive strategic priorities. He rejects Pink’s argument that bonus schemes produce perverse outcomes and stifle creativity but says they have to be well designed.

The skill lies in correctly aligning an incentive plan with the company’s goals. Things such as teamwork and information sharing can be measured by managers who have been supplied with observable examples of what comprises those behaviours.

“A performance management incentive system that tries to look at things in a one-dimensional way can be too focused on the goals of the incentive plan and not the broader context,” he says.

“If organisations only rely on their bonus or incentive program to drive motivation, then that’s not going to be effective and it’s not going to be a very exciting or attractive place to work, says Garry Adams, business leader for human capital at Mercer.

“Most people come to work in order to work hard, do the right thing and enjoy their work because they value what they do,” he says.

“However, we also use incentive plans and other extrinsic rewards to thank people for the success of the organisation and their contribution to it.”

Case study: Perpetual

Leaders at investment company Perpetual believe the company’s bonus scheme is key to helping the business meet its profit targets. Each of Perpetual’s 1000 staff – from the chief executive down – is eligible for a bonus.

“We take the view that bonuses do help motivate employees to make the discretionary effort for the company to meet business objectives,” says Greg Kiddle, general manager, remuneration and benefits.

“What we feel is that appropriately recognising and rewarding high performers motivates staff to improve performance and gives a positive reinforcement of the attitudes and behaviours that distinguish high performers from low performers.”

The setting of performance measures begins with management and the board agreeing on the company’s annual objectives. This is then broken down into performance objectives for company divisions and ultimately each individual. Performance is measured on a bell curve and around 90 per cent of the staff typically earns a bonus. Perpetual also tries to stop staff skewing their work so they can meet the key performance indicators that will earn them bonuses to the detriment of other core functions via the implementation of ‘hygiene factors’.

“They’re things that you’re expected to do in the role to a certain acceptable level in order to fulfil that role,” he says.

Before anyone can be eligible for a bonus, they have to meet their hygiene factors. Once they have, meeting their performance measures will determine whether they get a bonus and its size. So, an employee could meet the performance measures that would their bonus, but if they failed in the core competencies of their role, miss out. Does the bonus system stifle creativity? Kiddle believes the culture of an organisation and whether it encourages creativity is more important than bonuses.

Leave a reply

avatar
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Notify me of
More on HRM