Why Bonuses are Bad…
What’s wrong with a bonus? Advocates of this method of compensation argue that a bonus rewards performance above and beyond the expected — but that is just the problem with a bonus. The message it sends is, “it’s ok to just be good, we’ll still pay you a salary and you’ll keep your job.” Are you satisfied with employees who are just good? Don’t we all want to work with people who routinely perform above and beyond expectations, who are naturally driven to achieve the best results possible? The bonus-carrot just sends the opposite message to employees – that it is ok to be mediocre. I should clarify that I am not talking about commissions, and that I don’t believe that everything is black and white – ie I am not saying rewards for great performance are bad. It is great to reward people for exceptional performance, but don’t set the bar at mediocre by building an expected bonus into the compensation package that clearly communicates ‘good enough’ is acceptable.
Instead set the expectation that performance should always be exceptional, and roll any anticipated bonus into the base compensation. Then, if an employee is not meeting those exceptional standards, reward them with a nice severance and find someone who naturally seeks excellence to fill the void. Harsh? Perhaps. But would you want anyone less than great working for you?
Beyond sending the wrong message, traditional bonuses often lead to short-sighted business decisions and ‘juking the numbers‘ just to hit quarterly bonus goals. Again, do you want to encourage short-sighted, myopic behavior, or do you want to cultivate a culture of expected excellence and long-term visionary thinking?
