A couple of years ago, I wrote a small piece for the journal of Swiss Engineering, a technical association. My article, written in 2012, went as follows:
"I have had five employers in my professional life. The last was the only one to have a dimension "merit salary": a bonus granted to all employees of the company, part of which was based on individual performance.
In principle, a great idea: the employees are motivated (by greed, one presumes) and work harder to fulfil their objectives and therefore maximise their bonus earnings.
Thus is the theory, but the devil is in the detail.
To reward merit, one must be capable of measuring results compared to objectives. That is to say, that the objectives must be SMART: Specific, Measurable, Attainable, Realistic and Time-bound
The effort needed by employees, their managers and the HR departments to define such objectives is enormous. The quality of the objectives is often problematic. Not only must one train everyone in these processes, but one must ensure that there are functions capable of carrying out audits and ensuring this quality. This is quite a challenge, since people are busy with operational duties.
Objectives are defined for a period of time (for example, a year) ... but the situation inevitably changes between the beginning and the end of the period. Therefore, there must be resources to ensure that the objectives are kept up-to-date.
When it comes to evaluations (annual reviews), one must ensure that the managers act objectively, without being unduly influenced by links of sympathy or friendship for some individuals.
One must also have appeal procedures, for the cases where employee and manager do not agree ... and avoid that the employee fear reprisals if he ever invokes such appeal procedures.
Even more difficult is to ensure that the objectives for each employee are compatible with those of each of his/her colleagues ... If each person only works for himself/herself (that is to say, for his/her objectives and thus his/her individual bonus), collaboration will suffer and so will the collective performance.
Bonuses granted in a non-transparent or unfair manner ... or perceived as such ... leave the employees with the impression of having been cheated and have worked for nothing ... Bonuses can therefore demotivate rather than motivate ... and they can encourage jealousies and selfishness.
Yes, a good idea but a huge amount of resources is needed to do it well. How many companies can afford to invest sufficient resources? To do it, and to do it badly, is far worse than not to do it! And to say that wee must run a bonus scheme without additional resources because we should have been doing it since a long time ago is not really "smart". It is "silly". Quality has a price!
My opinion on the matter: the company must calculate the resources needed to introduce and manage a bonus scheme. If the company cannot or does not want to dedicate these resources, it is best not to do it".
**
That was me in 2012. Now, in 2015, I really think it is a terrible idea ... Systematically, in my last two companies, I have seen more unhappy than happy people on Bonus day ... Why did I not get the same as last year? ... My project was 90% attained and not 50%! ... I was penalised not because of my performance but because there were budget cuts and they would not admit it!
I think Bonus create more animosity than they are worth ... besides, they do not count towards your pension plan, although they are counted as ordinary income for the purposes of unemployment benefits.
And companies can shoot themselves in the foot ... Recently, to show how well they are doing, a certain corporation came out with a gigantic 120% corporate bonus attainment ... Presumably, to impress investors ... Rumour has it, however, that privately the instruction was given to be extremely strict with the individual component ... So, every argument was used to say to people: you did not this perfectly, etc, so you only get 50%, or 60% or 70% of your individual bonus ...
The total bonus payment was the multiplier of collective bonus (120%) times individual bonus (say 50%) ... coming to, say 60%.
In fact, the company probably globally paid a 100% bonus, because legions of people were penalised on their individual component.
What is therefore the effect?
A lot of extremely demotivated employees, who felt (in many cases rightly) that the company took them for a ride.
Companies should be careful that they don't annoy their people unnecessarily. These games might be fun at board level but undermine loyalty and morale in the other ranks. Corporations that indulge in these opaque practices risk ending up like the UK as described by the irreverent Australian: "The problem with this place is that people with get up and go ... actually got up and went."
My advice to any company: get rid of the bonus scheme. Pay less, but be seen as fair.
