Why you should think twice about taking a job with a huge bonus plan

By Neil Patrick

We work to earn money. And the more money we earn, the happier we will be. Well not quite.

Research shows that the happiest and most productive workers are not the ones who are given the largest bonuses, but the ones who are given the greatest autonomy and freedom of choice in how they go about their work.

There’s a nasty secret about businesses which pay large bonuses. The giveaway is if these bonuses are linked to sales and/or profits. The companies that do this, even if they are completely legal and ethical are sowing the seeds of their own destruction.

Of course businesses must make profits. And they often reflect this by using monetary incentives to give greater rewards to those who make the most profit. But here’s what’s strange. Studies have shown all over the world that greater monetary reward for success with cognitive tasks result in poorer performance.

Huh? How can this be?

The tests have been repeated in different nations, in different types of business and at different levels of employee. And the results have been exactly the same. Greater monetary rewards result in worse performance.

There’s a qualifier though. This only applies when pay is high enough for it not to be a factor. If people are paid enough so that they don’t need to worry about paying their bills, they exhibit this behaviour. If they are struggling to make ends meet, then it doesn’t apply. So this is clearly not an argument to reduce pay. In fact it’s an argument to pay people well, but not to incentivise them with huge monetary bonuses for sales and/or profits.

The most obvious business where this behaviour is the norm is the financial and banking sector. And the collapse of 2008 is strongly associated with behaviors which were influenced by excessive monetary rewards. The provision of large bonuses linked to profit directly led to an increase in bad things. Like making riskier loans, interfering with exchange rates and miss-selling products which customers didn’t want or need. And as these behaviours continued unchecked over years, we all know what happened next.

I’m not arguing against bonuses. What I am arguing is which behaviours these bonuses reward and encourage.

What the studies show is that when work is cognitively based rather than manual, performance declines when simple productivity bonuses are applied. This is explained by the fact that encouraging profit seeking behaviours at the individual level, leads to worse products and services. Corners are cut. Quality is reduced. Prices are inflated.

But this age old practice is now being increasingly challenged. Giving things away for free. Not crappy incentives like pens or free monthly trials of software, but a whole service. Like Skype. Or Twitter. There are of course plenty of people who will argue that Twitters’ IPO was way overvalued. That the whole social media explosion is a bubble which must burst. But the cat is out of the bag now. Regardless of what happens to these businesses, there’s no turning back.

Business sustainability depends on growth and profit. That remains as true today as it has always been. But also at the base of the most sustainable businesses is customer satisfaction, goodwill and preference. The question is how should businesses reward and recognise their staff in the pursuit of these goals?

Monetary reward for greater profits isn’t the answer, at least in the long term. Ensuring the business consistently delights its customers is.

If you want a job with huge bonuses for the sales and profits you deliver and you can get it, that’s fine. Just don’t plan on the business surviving long enough for you to receive your bonus more than a few times…

If you’d like to see a little more about the research on this topic, this RSA video by Dan Pink is a really insightful watch…