The “Performance Bonus Myth”

Contrary to popular belief, the awarding of performance bonuses does not generally improve team or business performance. Many will argue that before they had a bonus structure in place, their sales numbers or statistics were not as good as they are since they have been using bonuses.

This is a paper argument, as they are correct that those numbers often do go up, but it is often at a cost of the team or business’s overall performance. A team can have many more players rank at the top of their positions in statistical categories yet lose more games.

In the case of a business, all of their salespeople can achieve their bonus goals, and the company can achieve record sales and profit too, but at the same time, be undermining the future of their business.

For example, let’s say that each employee gets a large bonus if they reach a million dollars in sales for the year. But what happens if they all reach their bonus target by getting customers to order part of next year’s goods in the current year, thereby reducing next year’s sales? Is that improving the company or setting it up for failure next year?

You see, human beings are selfish creatures by nature. Whenever you give them an incentive to reach a number, their motivation is to do whatever it takes to get to that number and receive their incentive, not to do what is in the best interest of the team or business.

I’m not against bonuses, but rather I’m against the improper way they are used.

A better approach to bonus structure that I advocate with the teams and businesses that I work with who insist on having them is to tie the incentives to a process that produces the results you are looking to achieve. If you are a team that wants to win more games, stop giving monetary bonuses for statistical milestones and start giving them for things that lead to the things that are more likely to impact your team’s record.

An example would be coupling the incentives to show up for all of your preventive treatments at the facility on time. If you are not playing, you are not helping the team, so tie incentives to the things that help them stay healthy. This makes you more likely to win games than giving players the typical selfish performance bonuses for catching a set number of passes this season. No one cares how many passes an individual catches if the team sucks.

In business, rather than tie a bonus to a sales figure, find out what leads to higher sales and attach the bonus to that process. An oversimplified example would be that we have found that, on average, you need to spend 75 hours with a prospective client to achieve one sale. Give bonuses to them for every client they spend at least 75 hours with.

You do not have to give financial incentives to spur peak performance. MVP awards are highly sought after in sports, yet the winners receive NO financial award. If you are the best in any field, the financial rewards will find you.


You can follow Sam on Twitter @SuperTaoInc


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