#72: To bonus or not to bonus

Is a bonus the best form of employee motivation?

In this podcast I talk about the dangers of a bonus culture and how to think about it differently.

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Published: Wed, 03 Feb 2021 16:21:40 GMT


[00:00:35] Hello and welcome back to The Better ROI from Software Development podcast.

[00:00:42] In this episode, I want to talk about bonuses.

[00:00:45] In this episode, I'm looking at to bonus or not to bonus.

[00:00:50] I talked previously in the last episode about meetings, the good, the bad and the ugly. In the ugly category I included performance reviews and part of that I talked about bonuses and how bonuses could produce the wrong effects.

[00:01:11] So in this episode, I want to dig a little deeper on that and talk about bonuses in more detail.

[00:01:19] I actually grew up in my formative years in a culture of bonuses. In my initial companies I worked for a bonus culture was the norm, and I have to freely admit that I benefited hugely from it financial.

[00:01:37] So maybe let's start there. Let's talk about my history with bonus programmes.

[00:01:43] So looking at my formative years when growing up, learning my trade, a lot of that was in an organisation that was heavily bonused.

[00:01:52] I have to admit, it probably worked for me. If I'm honest, I probably didn't take too much notice of the bonus because it wasn't that important to me, but I can understand why it made a difference to other people.

[00:02:05] In the organisation, it was generally an annual review, and for me, my goals were fairly weakly set. Largely, it was more about how the organisation performed.

[00:02:15] Thus it was difficult most of the time to see how my individual performance actually affected the ability to obtain that bonus. As such, I focussed more on probably doing the best job that I could do - rather than necessarily basing it on specific bonus criteria.

[00:02:37] So personally, I don't actually think the bonus setting caused much difference to my personal behaviours.

[00:02:45] As time moved on within the organisation and I moved further up the ladder, I entered situations where I was managing other people and having to bonus them.

[00:02:57] When I use bonuses with my teams, I want to be very careful about how I used it. Even early on I was aware it could produce dysfunctional results if not done correctly.

[00:03:10] I arrived at a way splitting the bonus journey based on some being quarter and some of it being yearly - maybe a 50/50 split.

[00:03:20] This worked well for me because it forced monthly regular conversations. It meant we're in a position where, as me talking to a member of my staff, we had a good excuse to sit and talk - to go through the goals we set together and allow for course corrections.

[00:03:41] Not only was that course corrections for the individual to meet their target, but potentially course corrections for the goal.

[00:03:49] And by having a virtue of that money, that bonus, being split across quarterly targets and annual and being paid quarterly and annual, meant that we were in a position where we could adjust and adapt as we needed to as a business.

[00:04:05] Early on, I moved away from the idea of a monthly bonus. Because it soon became something that would be seen as normal pay. There's nothing intrinsically motivating about it and it would soon be seen almost as a negative when it didn't arrive.

[00:04:21] Thus I liked the quarterly bonus. And I also didn't want to move all of it into the annual bonus, because it's very difficult sometimes to keep any target front and centre in your mind if it's only going to affect you at the end of 12 months, such a long period of time.

[00:04:39] Thus for me, being able to split the bonus I was able to award, between quarterly and yearly seemed to produce the best effect that I could. That's how I used it, but I believe there were still problems. Money as a motivator even then I felt was not the best way of achieving the best results.

[00:05:03] It brought with it the dangers of dysfunctional behaviours.

[00:05:08] Let's talk about money as a motivator.

[00:05:12] First off, money is important, there is no two ways about it. Money is obviously important to both the business (in how much they want to spend) and to the employee about how much they believe they're worth. And, of course, to be able to provide, put food on the table, be able to pay the bills and have a comfortable lifestyle.

[00:05:32] Money, however, has to fit into the Goldilocks category;

[00:05:36] Not enough - your staff are disgruntled and likely to move on or to be very negative about the organisation.

[00:05:45] Too much - and it will always be about the money. The money will be the only thing that's important to them.

[00:05:53] You have to take the money off the table, it has to be just right, in that Goldilocks zone, that the conversation of money is taken off the table because it's just right.

[00:06:05] Daniel Pink in his book Drive, talks about extrinsic motivators, the reward punishment motivators, the carrot and the stick. Bonuses can be motivational initially, and he talks about this very much in the book, that money and financial reward can produce a level of motivation it's what he describes as an extrinsic motivator - an external motivator - by us, the business, being put toward the employee.

[00:06:35] However, research shows that it loses potency over time and even becomes a de-motivator if for any reason it's withdrawn.

[00:06:48] If you think back to where I describing how I was using bonuses with my teams in my earlier days, I inherently knew that if I paid it monthly, then my team would get used to it being in their pay monthly and they would feel it was theirs by right - thus any removal of it was so much more a demotivate than any motivation that it would produce over the longer term.

[00:07:17] And Daniel backs that up in his book, he talks about so many organisations struggling with using rewards, or indeed punishment, as a means of motivation - both of them lose potency over time if they are used over and over again.

[00:07:36] And as I say with the bonus, he actually talked about how it became a considered right - and any time that it wasn't paid was actually demonstratively more demotivational than any motivation had been providing for before it.

[00:07:55] In Daniel's book, which I certainly recommend reading, he then goes on to talk about the intrinsic motivators. The ability for an individual to drive themself.

[00:08:06] He talks about three things that help individuals drive their own motivation. Three things, that if these are engaged, you get a much better motivational drive for an individual than simply by that reward/ punishment, that carrot, that stick.

[00:08:21] Those three things were Autonomy, Mastery and Purpose.

[00:08:28] Autonomy is that desire to direct our own lives, self direction on how a task is done or indeed if that task is done at all.

[00:08:39] Rather than being told we have to do "this", rather than being micromanaged, rather than being at the receiving end of command and control, being set a target and being able to decide how best to achieve that.

[00:08:55] It's something that the individual then has delegated authority to do what is needed to achieve the aim they are set.

[00:09:06] Mastery is a desire to continually improve at something that matters. It's the satisfaction of getting better at stuff.

[00:09:17] By constantly getting better and better at something, it helps to avoid boredom, it helps avoid repetitive action.

[00:09:27] Consider the martial artist who continually work to achieve mastery. Well beyond what most people would consider good enough, they continue to get better and better for that self-satisfaction and that desire to improve.

[00:09:44] And the third is purpose; "does the work matter?", "is the work larger than themselves?", "does it bring joy?", "does it make a difference?"

[00:09:58] Daniel's book goes into deep detail how those three intrinsic motivators, those internal drives, the autonomy, mastery and purpose serve as a much greater motivator than those extrinsic motivators of reward and punishment, carrot and stick.

[00:10:21] So let's move on to dysfunctional behaviours.

[00:10:24] When we set bonus criteria's and bonus goals, we generally set well-meaning targets.

[00:10:31] We are trying to incentivise on a specific behaviour that we want our staff to exhibit. The danger comes, because we are focussing on specific behaviours with our incentives, any behaviour that isn't being incentivised, isn't being focussed on, suddenly seems less important.

[00:10:52] And this is where dysfunctions can arrive.

[00:10:56] Let's take a look at this in terms of software development. We could bonus our software developers on the number of lines of code written - and I've seen this happen. We bonus them on how much work they can write out.

[00:11:15] From a software development quality point of view, writing a lot of lines of code is not important - it's actually dangerous.

[00:11:23] It means it's very easy to churn out rubbish rather than well crafted software.

[00:11:31] Think of it as similar to a novel writer; if you bonus a novel writer on lines written, they could churn out pages upon pages upon pages of meaningless drivel. To achieve the target you set, the writer has completely ignored quality. They're not writing prose, they're not writing well written verses.

[00:11:58] What they're doing, is they are churning it out to meet a target of numbers - rather than quality.

[00:12:05] One other example I've come across is where a software developer was being bonused on fixing bugs, whereas a QA engineer was being focussed on finding bugs.

[00:12:18] In doing so, the two effectively managed to work together to maximise their bonus potential.

[00:12:27] By originally writing quite poor code, the QA Tester would find lots of bugs and the software developer would then fix those bugs - and between the two, the circle could continue infinitum. Each achieving well on their bonus targets.

[00:12:49] Such practises are obviously morally questionable. But they're going to happen if we are incentivising people, with money, to do things that will cause dysfunction.

[00:13:05] You also get more subtle example.

[00:13:08] In "Coaching Agile Teams" by Lyssa Adkins, she talks of an example of three developers. All three have been targeted to take ownership, to be more visible in your organisation, to gain more profile and presence - its become part of their performance review, part of their bonuses.

[00:13:29] Unfortunately, the three were meant to work as a team, but they've been effectively pitted against each other. And this has led to poor working together - because they're all trying to do what they need to do to achieve their bonus, to achieve their targets, which in effect is actually blocking each other's efforts. A very dysfunctional outcome.

[00:13:53] And I always refer back to sales; sales for me is an obvious place where you see a lot of this dysfunctional behaviour. It may be almost anecdotal that we bonus a sales team on sales, not on the quality, not on the customer, not on that fit for either the customer or the organisation. You only need to look at the financial crisis of 2008 to see that in action. But this is nothing new, this has happened throughout time.

[00:14:27] Anything where we are bonusing on a specific outcome, we have to be exceptionally careful that we aren't inadvertently causing dysfunctional behaviour in other behaviours.

[00:14:43] In this episode, I've talked about the bonus or not to bonus.

[00:14:46] I've talked about how it affected me early in my career, both personally in terms of my own performance, my own goal setting, as well as how I managed teams using it. And even then, at the time, I always felt that there was probably a better way of achieving it.

[00:15:06] I talked about money as a motivator and how it drives into that extrinsic motivator, as described by Daniel Pink in his book Drive, how that extrinsic motivator of reward and punishment, carrot and stick, can lose potency over time and actually create de-motivation rather than motivation. And I then talked about how he recommends looking at the intrinsic motivators to drive those internal motivators - that autonomy, that mastery, that purpose.

[00:15:39] I also talked about the dysfunctional behaviours we can get from bonuses - we may try to set well-meaning targets, we might try to incentivise on specific, well-meaning behaviours. But in doing so, it's too easy to cause dysfunction in other behaviours that aren't bonused, that aren't prioritised.

[00:16:00] And I talked about a number of examples in there.

[00:16:04] I personally believe that bonuses are not the right way to go.

[00:16:08] I'd rather see an employee paid well paid in that Goldilocks zone of not too much, not too little.

[00:16:14] And I like to see them then be in that place where they're motivated for those intrinsic motivators, where they are in an organisation that values them and provides them the ability to have that autonomy, that mastery and that purpose.

[00:16:29] If you haven't already, I certainly do recommend reading Drive by Daniel Pink. It's an excellent book and well worth a read.

[00:16:38] Thank you for listening. And I look forward to speaking to you again next week.