Tuesday, June 28, 2016

The Psychology of a Bonus

It is an interesting thing to note that a person could be making $200,000 per annum and get a $10,000 bonus and be near nirvana as a result. I was employed by a multi-national, world wide company for 30 years. For twenty years of that time I was a salaried employee as were all of my fellow employees. The company we worked for believed in paying you well. There was no such thing as a peformance bonus. You were given a yearly performance evaluation. If you were fortunate enough to hit on all of the metrics in this performance evlauation you got a salary increase. There was a complicated, human resources developed, career grid. Every position had a level and a salary guideline. If you went from being a paper clip counter 1 to a paper clip counter 2 you got a very nice salary increase. There were 4 levels in each position. The gist was that there was a 56% spread across those levels. If entry level was $10,000 per year then the spread across the level you were in went to $15,600. Go to the next level the entry on that level would be $13,000 and the spread would take you to $20,280. All I know is that I started with the company in 1972 at $7800 per year. When I left, 30 years later, I was making $180,000.

Along the way, I was invited to serve as a member of a task force that looked into adopting a bonus program. Our division, within the company, was to be a test market on the effects of implementing such a bonus program. If it seemed to have a synergistic effect on employee performance then it would be adopted all across the company. The career performance evaluation method was to be retained and this was to be an opportunity for a bonus to be paid out quarterly. It took us 20 meetings at 20 locations across the country. We retained consultants to help us with the analytics and we rolled out the finished product approximately two years later.

The bonus was designed to provide you with an additional 10% added to your base salary. It behooved you to be the bosses fair haired child still to get good peformance evals. It was strange to see the level to which the sales force reacted to this bonus program. There were all sorts of little pockets of schemes across the country designed to tweak the sales numbers to drive optimal bonuses. Most employees lost sight of the fact that 90% of their compensation was performance based along such ideals as ethics, teamwork, sharing of information, etc. Instead people in teams would conspire against fellow employees to drive this 10% bonus system. If their conspiracies were egregious enough they could be disciplined, put on probation and receive no salary increase or bonus.

I was not ever able to see how this effected the overall ability of our sales force to drive more business. The sad result was that due to other issues the company decided to sell our division to another company. There were mass layoffs and I and many of my colleagues who had helped develop this bonus structure never saw enough proof that it was all worth the time and effort to create it.

Thus I conclude after thinking about this issue that there lurks within us some strange corner of reason that bonuses play to. It is sort of like "found" money. I recall the character Clark Grizwold, played by Chevy Chase in the movie Christmas Vacation. A sizeable part of his income had to be his salary. That seemed to provide more than adequately since he had a very nice home and numerous amenities. However, he dreamed of his Christmas bonus and the swimming pool it was going to provide for his family. One can only assume that he was willing to put in the extra hours, take on extra assignments, and whatever else it took to max out this bonus.

I suppose that this "found money" analogy must be what drives people to play online poker, buy lottery tickets, spend a week and a wad of money in Atlantic City to win the bonus. The very next lottery ticket I buy will be my first. That truly is a tax on the stupid. That is a whole different post to this Blog. Lot of tricky psychology wrapped up in this whole American scenario of the bonus.

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