Rethinking the bonus

I read a great article on how to reshape the traditional bonus. I can’t find the original article, but the study it was based off of was summarized in the Wall Street Journal.

The article went something like this: a bonus is designed to incentive improved performance, and is paid only after certain milestones are achieved. In theory, it works perfectly: the company gets the results it wants, and the employee is paid for going above and beyond.

This structure hasn’t changed significantly for many, many years.

But year end bonus time comes, and companies are often missing their goals despite the promise of a bonus. Is it that the reward was disproportionate to the goal? The goal un-achievable?

Psychologists have long known that the fear of loss was greater than the joy of reward. How then do you apply that to a bonus?

The study gave a group of teachers a bonus at the beginning of the year and told them they had to return it if scores didn’t improve. The other group was rewarded using the traditional bonus structure. The teachers who got the bonus, spent it, and didn’t want to return it improved scores dramatically more than those with the traditional structure.

In my view: brilliant.

Similar Posts

  • The Fifth Truth: Defy Gravity

    Our private equity partner team signs their emails with four truths: communicate fearlessly, compress time, work tirelessly, and love what you do. These truths have been good to me, helping me achieve success and accomplishment. It’s become apparent that following those truths will lead to good, but not great.  If substantial success, the definition of which…

  • Brian’s Favorite Articles for July

    People Have Money but Feel Glum—What Does That Mean for the Economy? from the WSJ. A great summary of the juxtaposition between the general malaise in consumer confidence which is contrast to all the strong metrics of the economy (hiring, unemployment, etc). How To Pass On Price Increases Without Alienating Customers – from Forbes Business Council. My favorite quote…

  • Four Steps to Winterize Your Business

    Understand year end financials, connect, set up 2024 for success, plan 2024 calendar. It’s full-fledged fall here in the Midwest, and I’ve been busy running around the house unhooking hoses, cleaning up leaves, and generally getting the house ready for winter. It reminded me that, just like our homes, our business needs to be “winterized” each…

  • The Business Mentor I Admire Most

    As corny as it sounds, I already have my dream business mentor: my father.  He runs a small family business in Rockford, IL. He makes metal parts, which is far from my traditional interests or ambitions. However, there’s commonality that I relish. He doesn’t have a love for formal financial statements; instead, he understands that…