The festive holidays are over; as ever sped on their way by the bonus season and some promise of reward for reluctant returnees. Yet here too the tinsel seems tarnished. And it’s not just a case of modern equivalent of the seven lean years following the seven fat years. The now-perennial debate about bankers’ bonuses, with goodwill getting gazumped by gripes about galling greed, inevitably ripples wider.
Particularly here in the UK, where bailed-out banks are largely owned by the taxpayer and parliament pauses as the Punch & Judy pantomime of party politics resumes with the ritual pointing of fingers and hurling of abuse across the floor, in the apparent conviction that he who shouts loudest will carry the day. One has to wonder whether all the passion, pomp and posturing is entirely for show. Certainly, that is all an independent observer can conclude, since nothing actually changes.
This is incredibly annoying! Not least because the rousing rhetoric resounds with clichés and facile arguments that completely miss the point.
The underlying premise of bonuses is the apparently logical principle that people will work harder if they are better rewarded for their efforts. This has become so embedded in the conventional wisdom that it is never questioned. As a result we have a performance culture that has “grow’d like Topsy” and lost touch with reason. Incentives have become so ubiquitous that that the government is even introducing performance related pay into the teaching profession and the police!
Research, however, shows that this is flawed logic. Dan Pink and others have long shown that incentives are counter-productive for all but the most basic and mechanical of tasks. This makes sense when you consider that increasing complexity means greater interdependence. In a world that is becoming increasingly complex this means that people are increasingly less capable of shaping their own outcomes or determining their own results.
- Cannot possibly cater for the complexity.
- Focuses on details which can draw attention away from the big picture/more important issues.
- Constrains behaviour by focusing attention of the individual on what is important to them rather than what is important to the organisation.
- It is time-consuming to devise, to implement and to measure: time that adds little or nothing to the bottom line, and much of that executive and management time.
- Cements inflexibility and inhibits responsiveness,adaptability and innovation.
Linking pay to individual performance exacerbates these weaknesses, not least because it can (and often does):-
- Cement permanence and foster self-interest at the expense of customer and organisational interest and further cement behaviour that is actually detrimental to the organisation.
- Create entitlements that are not justified by the overall organisational results.
- Become the basis for performance reviews and results in too narrow a focus.
- Result in inequitable rates that inflate senior management and executive remuneration and thereby foster resentment and undermine employee engagement.