The subject of bankers and their bonuses has raised its ugly head again this week. Yes, it is getting kind of boring.  If only because nothing new ever comes out of these media-driven examinations.  All we really get is a platform for the ‘public’ (or sections of the public) to express their disgust. What is there new to say?  Well, one or two thoughts spring to my mind (albeit not necessarily new).

First, the mass demonization of everyone who works in the banking industry is unhelpful and unfair. Indeed, a sizeable majority of those who work for the bank in the news this week, operate a long way (both physically and financially) from the lofty heights of the “City Bonuses” often quoted by the press. The people who work at the front desks of the provincial banks up and down the high streets, or in the call centres around the world, or in the admin departments at HQ, are not earning big bucks, and in the main, will never see a bonus no matter how good a job they do.

Second, the bonus system (not just in banking), one of the key incentivisation tools at the very heart of capitalism, is profoundly broken.

source credit: http://www.wetfeet.com/

Let’s assume for a moment that monetary bonuses do have some merit as a means of incentivising staff to do a better job than they otherwise would do.  At the very least, one would expect that the measure of success used to decide whether the bonus should be paid, would be one that resulted in a direct improvement for the customer. That may be in the form of better value (financially), better quality or better service, but it should be something that is tangible and agreed (externally) as having resulted in that improvement.  

What has become all too prevalent in the crazy ‘bonus-driven culture’ of our businesses and organisations, is an industry of internally-driven, inward-looking, process improvement measures, which have little or no relevance to the end customer, or recipient of the service. Internal departments, in order to prove their value and viability, concoct complicated measures, based on process efficiency, productivity enhancements, employee engagement and so on. All worthwhile activities, no doubt, but irrelevant if the end customer experience is not impacted and does not improve. Despite this, great effort is expended in agreeing annual goals and targets, and even greater effort in gathering evidence to prove they have been achieved, regardless of whether the end customer is receiving improved service, value or product innovation.  The system has lost its way, and lost touch with its original purpose.  

Ah, original purpose. What was that anyway?  Well, the bonus system at its simplest was conceived in an age of industrialisation, when making and producing things that could be easily measured, and sold, was at its peak. Rewarding people for churning out 100 parts an hour when the normal average was 80, was an easy and straightforward system to operate. Easy to measure, easy to operate. The worker sweated harder and earned more, the factory owner piled stock higher, he sold more, he sold cheaper, he undercut the competition, the customer was happy.  The system was also the basis of the selling business.  Salespeople were paid little (or nothing at the most extreme) and paid commission (or bonuses) per sale. This drove a particular type of behaviour, which was not always ethical, driven often by desperation. But, here also it was easy to appreciate the simplicity of the system.  From these beginnings, the bonus system has been embraced by almost all big businesses in the private sector, and by large swathes of the public sector. It can take many different forms, but one thing is certain, it has created an enormous industry of target creation, measurement, tracking and financial audit. Overheads that most businesses in today’s economic climate could benefit from striking from the bottom line.

Now, here’s the real rub. Does the system work at all?  Well, it would appear that businesses have simply not kept up with the science.  We are rewarding totally the wrong behaviours. In fact, one could argue that we are rewarding the very behaviours that continue to maintain the system that is not working.

Most problems and challenges our big businesses and organisations face today are not of the ‘industrial factory’ type. Companies, organisations and governments are looking for creative, innovative solutions to intangible and intellectual problems. Despite this, society is reluctant to break away from the traditional factory model of reward and motivation.

The evidence is clear.  Stretch goals and offering people bigger rewards to solve intellectual problems actually has the effect of lowering performance. It is in fact a disincentive.  Bonuses work well only in cases of clear, well-defined and narrowly focused tasks, but, in the case of complex, intellectual problems they actually dull thinking, and cause people to adopt too narrow a focus. I wrote about this in a previous post titled Stretch Goals dull our thinking, and, in that post, I referenced a highly appropriate and significant TED talk by Dan Pink called “the surprising science of motivation”.

Please share with as many leaders in business as you can.  It is time for a rethink. 

If you feel that you or members of your management team would benefit from exploring ways to make substantial improvements to personal and collective effectiveness and productivity, please do get in touch. Simply submit your contact details on the Contact Us page and I will be delighted to get in touch with you for an informal initial chat.

What do I do?:  I enable people in business to operate more successfully.  They may be struggling to implement their corporate strategy, they may want to get more productivity out of their teams (without using bonuses) but don’t know where to start,  or their people may not be having as effective conversations with each other as they could be. I will work with you to enable you to formulate more effective ways of leading, to raise awareness of blockers to successful ways of working, and ultimately to help you to lead more successfully.