Written before about some of the dangers of bonus pay, so probably don’t need to belabor the idea of bonus structure — but I’ll drop a few hundred words on it. I think we all know the general flow on bonus structure: your company makes some extra money, and you have a chance at it so long as you hit some performance targets. If you are higher up the chain, you probably have a chance at a bit more of it. Lower down the chain? You may get nothing at all. And therein might lie the problem.
Bonus structure research
Here’s some research on how bonus structure impacts employee engagement, satisfaction, and trust. Those are three things we should reasonably care about, right?
Get about halfway down, and boom:
Our analysis did reveal some important nuances about profit-related pay. Specifically, any positive effects are dependent on the extent to which profit-related pay is available to a large proportion of the workforce. At low to medium levels of employee participation in profit-related pay, we found lower levels of job satisfaction, organizational commitment, and trust in management. However, at high levels of employee participation, we found higher levels of employee well-being.
The key words there would be “any positive effects are dependent on…”
The problem with companies, as explained through bonus structure
This is unfortunately how many jobs are structured:
- You hit target after target
- Then you ring bell after bell
- All the while, people are telling you everything is urgent
- You’re always too busy to see your friends, engage with your life, read, take walks, etc.
- Shit is always piling up
- At the end of 12 months of that, when you’ve barely taken a vacation, you get a tiny “cost of living” raise
- Some guy three levels above you gets a huge pop via his bonus structure
Now look, obviously companies don’t operate according to moral norms. They don’t have to. They’re designed to show growth and returns to a specific set of stakeholders, and that group is getting smaller and smaller as firms “digitize.” But look at the rise of the Gig Economy. Many flaws with it, yes. And while it didn’t come about entirely because of these reasons above, its rise somewhat indicates that work just isn’t working for people anymore. Think about how we view the work week. It’s a total fucking joke at most companies. “Be on your email, on mobile, at 11pm on a Tuesday! Urgent client needs!” Uh, what?
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And then you’re barely gonna give me an extra $3K on my bonus structure? Hard pass.
How we do bonus structure better
Not rocket science:
- Make it available to more people
- Be transparent about the financials (good and bad)
- Explain the process for awarding bonuses
- Make sure all employee tiers have relatively clear, understandable, measurable goals
- Give people opportunities to rise up and reach a new tier
- Explain how their bonus structure will then change
Most of those bullets are a pipe dream at a lot of companies, who tend to view everything they do as “unique” and in some way “proprietary.” Many senior leaders think what happens at their level could only ever possibly be understood at their level. Information is hoarded. Stuff like salary and bonus structure — which should be open, logical conversations — become total mysteries. And then the CEO stands up and talks about “a culture of trust.” What the fuck?
Anything else you’d add on bonus structure and this whole ecosystem?