Bonuses CanBackFire

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Bonuses a brief overviewA pay plan that rewards recent performance rather than historical performanceSignificant component of total compensation - Among Fortune 100 CEOs bonus exceeds base salaryBonuses are generally a positive strategy and can provide real motivationServe to increase employees' identification with a companyMost common form of a bonus scheme is straight forward profit-sharing

Some Common Myths MYTH 1 : Bonuses are necessary incentives

MYTH 2 : More is always better

MYTH 3 : Bonuses increase performance

MYTH 4 : Bonuses should be individual focused

We find that financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness. - London School of Economics

Bonuses should be given regularly or not Bonuses can motivate people

But theres growing evidence bonuses can backfire

Misalignment between what people do and their underlying purpose

Can lead to undesirable behavior


Behaviors would be driven by the reward systems

Foster competition between employees rather than collaboration

Unrealistic Expectations

Taxation of Bonuses

A situation in my life when being evaluated and rewarded on a specific goal lead to negative and unproductive behavior

Individual Bonus vs. Team BonusDepends upon nature of workIndividual BonusTeam BonusIf job involves:If job requires:Individual workSharing information No focus on sharingSharing resources No need for collaborationSupporting/helping colleaguesPossible ConsequencesIncentive to insulate oneselfSlackers-freeridingDetriment to team spiritReward disproportional to input10Contd

Hybrid:Two-thirds incentive to individual performance, one-third to overall team output. Prevents slacking-individual targetsKeeps team goal/big picture in mind. Retains focus on healthy work environmentIncentivises helping/guiding one another

How should a manager design a reward system to avoid the problems mentioned in the case?

Model to be followedEmployee can contribute to setting goals and their needs should be considered Choosing their own benefits packages At the end performance will matter and benefits will be rewarded based on performanceFeedback mechanism System of Equity

ConclusionIncentives are meant to boost performance but they do sometimes result in internal squabbles and unethical behaviorIt should be ensured that bonuses do not result in deterioration of QualityGroup and Individual bonuses:Group bonuses develop team spirit but may result in FreeridingIndividual bonuses are detrimental for team spirit but may serve as a boost for individual performanceIncentives should be based on what is in control of the employeesBonuses do not magically fix the performance, but is simply a mechanism for how you measure the change

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