Posts about bonus
Ackoff agile management aim airlines Amazon archive Asia ASQ Influential Voices awards bad customer service bad management bad service basketball Bezos Bill Hunter blogs bonus Books Brian Joiner build capacity business Canada Career Carnival cars change charity charts checklist China Clayton Christensen coaching commentary commissions communication complexity continual improvement control chart cool Creativity culture curiouscat Curious Cat Links Customer focus customer service Data Deming Deming Prize demotivate Design of Experiments disruptive innovation Douglas McGregor economic data Economics economy Education engineering entrepreneur ethics Europe evidence based management executive pay experiments extrinsic motivation fear feedback France Fun gemba George Box Germany global Google government guest post Health care health care system hiring in-process measures India Innovation inspection inspiration internet intrinsic motivation Investing IT Japan jobs Joel Spolsky John Hunter Joy in Work kanban layoffs leadership lean lean healthcare lean management lean manufacturing lean six sigma Lean thinking learning lecture long term thinking Madison management Management Management Articles management consulting management experts management history management research management tools management webcast managers managing people Manufacturing marketing meetings Mexico motivation online resources open access open source overpaid executives Paul Graham PDSA Performance Appraisal Peter Scholtes photos poka yoke Poppendieck Popular prediction previous posts problem solving Process improvement productivity program management programming project management Psychology Public Sector purpose quality quality management experts Quality tools quota quote regulation research Respect respect for people retail Ruby Science seminar short term thinking simplicity Singapore Six sigma Software Development South America SPC stakeholders standardization Statistics Statistics for Experimenters stockholders suppliers Systems thinking system thinking tags Taiichi Ohno targets teams TED Tesco Thailand Theory of Constraints theory of knowledge tips Toyota Toyota Production System (TPS) TQM training travel Travel photos UK uncategorized USA usability variation visual communication visual instructions visual management visual work instructions Warren Buffett waste webcast webcasts William Hunter Wisconsin Womack work workplace improvement

No More Executive Bonuses!

Posted on November 30, 2009  Comments (5)

Henry Mintzberg, wrote an excellent article for the Wall Street Journal today, No More Executive Bonuses!

Don’t pay any bonuses. Nothing.

This may sound extreme. But when you look at the way the compensation game is played – and the assumptions that are made by those who want to reform it – you can come to no other conclusion. The system simply can’t be fixed. Executive bonuses – especially in the form of stock and option grants—represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy. Get rid of them and we will all be better off for it.
…
So, again, there is but one solution: Eliminate bonuses. Period. Pay people, including the CEO, fairly. As an executive, if you want a bonus, buy the stock, like everyone else. Bet on your company for real, personally.
…
All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit.

Too many large corporations today are starved for leadership – true leadership, meaning engaged leadership embedded in concerned management. And the global economy desperately needs renewed enterprise, embedded in the belief that companies are communities. Getting rid of executive bonuses, and the gambling games that accompany them, is the place to start.

It is an great article on bad pay systems that let a few top executives (and their hand picked board members) in many companies to loot the treasury of the company. I have written about this problem many times, including: CEOs Plundering Corporate Coffers – Excessive Executive Pay (2005) – Narcissistic Cadre of Senior Executives – The Best Leadership Is Good Management – Another Year of CEO’s Taking Hugely Excessive Pay – More on Obscene CEO Pay – More on Failed Executives

There are executives that don’t act like corrupt dictators looting their country, unfortunately they are less common than those that act like looters. And they all seem to have built cultures that taking respect for people is more important that feeding a few bloated egos. Akio Toyoda’s Message Shows Real Leadership, Tony Hsieh, the Zappo’s CEO – Warren Buffett – Honda has Never had Layoffs and has been Profitable Every Year

The obscene pay is not just a matter of people taking a tens of millions of dollars they don’t deserve. Companies whole management systems are distorted in ways that lead the company to risk all the other stakeholders future for the potential gain of a few senior executives.

When Performance-related Pay Backfires

Posted on August 3, 2009  Comments (2)

When Economic Incentives Backfire by Samuel Bowles, Sante Fe Institute

Dozens of recent experiments show that rewarding self-interest with Economic incentives can backfire when they undermine what Adam Smith called “the moral sentiments.”

Punished by Rewards, by Alfie Kohn, is a great book on this topic. The area of “motivating” employees is one it is often hard for managers to learn. Even managers that have been studying Deming, Ackoff, Ohno… for years still have trouble with the idea that trying to find the right incentive scheme to motivate the right behavior is the wrong approach. Read the The Human Side Of Enterprise by Douglas Mcgregor (in 1960) to re-enforce the understanding of human motivation provided by Toyota’s respect for people principles.

Managers need to eliminate de-motivation in the work systems not try and find bonus schemes to motivate behavior. Eliminating de-motivation is often much more work. You can’t just get some money from the bonus pool and start giving it away. You have to manage. But if you are a manager you shouldn’t be afraid to actually manage the system and make it better.

Related: “Pay for Performance” is a Bad Idea – Reward and Incentive Programs are Ineffective — Even Harmful by Peter Scholtes – The Defect Black Market – What’s the Value of a Big Bonus? – Problems with Bonuses – Losses Covered Up to Protect Bonuses – Stop Demotivating Employees

When performance-related pay backfires:
Continue reading →

Another Year of CEO’s Taking Hugely Excessive Pay

Posted on April 6, 2009  Comments (5)

I continue to do my part to publicize the abusive CEO pay packages that the current crop of unethical CEO’s, and those sitting on corporate boards have supported (Tilting at Ludicrous CEO Pay 2008 – 2007 post on CEO pay abuses). It does seem there is more anger now at the looting these corrupt CEOs have engaged in; though far too many people seem to think the corruption is some isolated few CEO’s. The widespread failure of ethical standards by an enormous number CEO’s (those taking from corporate treasuries as though it was their own personal bank account) is the problem (not a few individuals). The looters certainly have littered their “courts” with apologists for their egregious behavior. Even with the large amounts they pay such lackeys I am surprised they find such willing apologists, in such large numbers.

2007 pay
rank		 Company CEO 2008 Pay 2007 Pay CEO % of 2008 Earnings total employees
1 Motorola Sanjay Jha $104,400,000 company lost $4.2 billion 64,000
2 Oracle Lawrence Ellison $84,600,000 $61,200,000 1.5% 86,600
3 Walt Disney Robert Iger $51,100,000 $27,700,000 1.2% 150,000
4 American Express Kenneth Chenault $42,800,000 $50,100,000 1.6% 66,000
5 Citigroup Vikram Pandit $38,200,000 company lost $27.7 billion 322,800
6 Hewlett-Packard Mark Hurd $34,000,000 $26,000,000 7.4% 6,200
7 Calpine Jack A. Fusco $32,700,000 327% 2,000

This executive pay data is for 2008, from the New York Times article, Pay at the Top. Earnings and employee data for 2008 from Google Finance. I would not pay any of these guys 1% of what they were paid if I owned the company, myself.

These guys and their friends have created a culture where their looting is as accepted as the clothes the emperor is not wearing. We need to wake up and stop letting these people steal the bounty created by the employees, customers, community, suppliers, investors… They want a world where they can behave like nobility – taking whatever they want from the value created by others. And lately they have succeeded in creating such a world. They leave in their wake very weakened companies and societies.
Continue reading →

$60 Million Bonus – For all Staff

Posted on February 15, 2009  Comments (1)

This is similar to a story I posted last November: Family Business Gives $6.6 million in Bonuses to Workers. I both cases long time owners sold their company to a foreign buyer and then gave a significant amount of the proceeds to long time employees.
Miami banker gives $60 million of his own to employees

After selling a majority stake in Miami-based City National Bancshares last November, all he did was take $60 million of the proceeds — $60 million out of his own pocket — and hand it to his tellers, bookkeepers, clerks, everyone on the payroll. All 399 workers on the staff received bonuses, and he even tracked down 72 former employees so they could share in the windfall.

For longtime employees, the bonus — based on years of service — amounted to tens of thousands of dollars, and in some cases, more than $100,000.
…
Sharing the wealth with staffers came naturally. Abess and his wife, Jayne, have long been big contributors to local organizations, such as the Greater Miami Jewish Federation and Mount Sinai Medical Center. In 2006, the Abesses gave $5 million to the University of Miami to promote environmental studies.

But he also wanted to reach out to his staff. ”I wonder if I did enough,” he recently mused.

”I knew some of these people since I was 7 years old. I didn’t feel right getting the money myself,” said Abess, who was concerned that their 401(k) plans had taken a beating in the downdraft on Wall Street last year.

Both these actions demonstrate respect for employees, rather than the hollow words many companies profess.

Related: People are Our Most Important Asset – Find Joy and Success in Business – How Downsizing is Handled When Management Respects People

Family Business Gives $6.6 million in Bonuses to Workers

Posted on November 29, 2008  Comments (2)

The PEER Bearing Company (a manufacturer of bearings based in Illinois) was bought out by a Swedish company this year. The family that had owned the company gave surprise bonuses of $6.6 million to the 230 employees of the company (an average of over $28,000).

family thanks employees with surprise bonuses

Family members signed two thank-you cards to each employee, one in Spanish and one in English, expressing gratitude for “the loyalty and hard work of our employees over the years.” “They treated us like extended family,” said Maria Dima, who works at the company along with her husband, Valentin. “We won the lottery.”

On the day the checks were distributed, Valentin Dima watched as co-workers broke down in tears over their bonus checks. He drove home first, then opened his envelope: $33,000. His wife received a check for a smaller amount, and the two Romanian immigrants have since taken a Caribbean cruise to celebrate.
…
The new owners intend to operate the company based 40 miles north of Chicago as a wholly owned subsidiary. Workers have been told that most will keep their jobs.

A small bit of good news for these troubling times. It is nice to see true respect for people being practiced. The family also created the Spungen Family Foundation, 2 years ago.

Related: Tilting at Ludicrous CEO Pay 2008 – Focus on Customers and Employees – People are Our Most Important Asset – Manufacturing Continuous to Increase in the USA

What’s the Value of a Big Bonus?

Posted on November 21, 2008  Comments (0)

What’s the Value of a Big Bonus? by Dan Ariely

To look at this question, three colleagues and I conducted an experiment. We presented 87 participants with an array of tasks that demanded attention, memory, concentration and creativity. We asked them, for instance, to fit pieces of metal puzzle into a plastic frame, to play a memory game that required them to reproduce a string of numbers and to throw tennis balls at a target. We promised them payment if they performed the tasks exceptionally well. About a third of the subjects were told they’d be given a small bonus, another third were promised a medium-level bonus, and the last third could earn a high bonus.
…
So it turns out that social pressure has the same effect that money has. It motivates people, especially when the tasks at hand require only effort and no skill. But it can provide stress, too, and at some point that stress overwhelms the motivating influence.

When I recently presented these results to a group of banking executives, they assured me that their own work and that of their employees would not follow this pattern. (I pointed out that with the right research budget, and their participation, we could examine this assertion. They weren’t that interested.)

This is an interesting look at an effect of bonuses. We all know monetary bonuses can influence behavior. The problem is the type of behaviors that result. Huge bonuses, for example, create huge incentives to risk the future of the company for the chance at a huge bonus for the executive. Extrinsic motivation leads to many problems.

Problems with bonuses: Losses Covered Up to Protect Bonuses – “Pay for Performance” is a Bad Idea – Problems with Bonuses – Book: Punished By Rewards: The Trouble With Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes by Alfie Kohn – posts on executive pay

Restaurant Eliminates Tipping to Improve System Performance

Posted on October 13, 2008  Comments (1)

Why Tip? by Paul Wachter

When he opened the Linkery, Porter said, he hoped his employees would become as emotionally invested in the venture as he was, sharing a sense of purpose and joy in their work.
…
Porter instead proposed a service fee of 18 percent, to be pooled and split roughly 3 to 1 between the restaurant’s front of the house and its kitchen.
…
Porter, like the anti-tippers of yore, was persuaded tipping itself was pernicious. “If you have a fixed gratuity, but people are still tipping, then you’re back to Square 1 in terms of the money dynamic,” he says.
…
The restaurant was already paying 65 percent of its employees’ health-insurance premiums, and Porter was working on a scheme to give long-term employees ownership stakes in the business.
…
But Chelsea Boyd told me that eliminating tipping had made her work as a waiter at the Linkery more meaningful than any other restaurant job she has had in the previous 10 years. “For the first time, I get to concentrate on the job, and I’m looking at the guests without seeing dollar signs or worried about what anyone else is making,” she says. Under the old system, waiters earned between $25 and $35 an hour, much of which was untaxed. “Now, waiters make about $25 an hour, which is fully taxed,” Boyd says.

Renee Lorion, a former waitress at the Linkery who now works in publishing in New York, liked the new anti-tipping policy too. “As servers, we all took a pay cut, but we knew it was for the general health of the restaurant,” she told me. “What made it work is that Jay was very transparent about the restaurant’s finances.”

Obviously, the kitchen appreciates the new policy. “Earning three or four extra bucks an hour makes a difference,” Matthew Somerville, a cook, says. “In most restaurants, there’s not a close relationship between the front and the kitchen. But here you don’t have that tension, where waiters are trying to accommodate customers’ special requests, while the cooks doing the extra work don’t see any of the tips.” Today, Porter’s employees appear almost as fervent in their opposition to tipping as their boss.
…
The single most important factor in determining the amount of a tip is the size of the bill. Diners generally tip the same percentage no matter the quality of the service and no matter the setting.
…
In his one concession to big tippers, Porter offers them the option of donating money to charity. The Linkery’s charity of the month is printed on the menu, and in two years more than $10,000 has been raised for various causes.

This is an interesting article discussing some of the psychological and systems thinking aspects of managing a system made up of people.

Related: Eliminating Commissions – Losses Covered Up to Protect Bonuses – Respect for People, Understanding Psychology – Losing Consumers’ Trust – Compensation at Whole Foods – I wasted the best years of my life

Individual Bonuses Are Bad Management

Posted on August 7, 2008  Comments (1)

Gojko Adzic provides a nice post on Mary Poppendieck’s presentation at Agile 2008 on bonus, compensation and motivation: Paying programmers: are bonuses bad and what to do about it?

In software development, it is very hard to establish the effects of individual contributions and good teamwork is key to the project. Most individual compensation schemes, according to the presentation, absorb vast amounts of management time and resources and leave nobody happy, but team compensation strategies are not easy to implement. Mary presented results from HP’s experiments during the beginning of the nineties, when HP allowed 13 local organisations to experiment with team-incentive plans. All programs were discontinued by the 4th year, due to constant changes to the plans which were needed to distribute available money among the teams and a wide dissatisfaction with the plans by employees.
…
Use profit sharing schemes instead of bonuses to tie people to the organisation goals.
keep in mind the norm of reciprocity — if people feel that they are being treated generously, they will reciprocate it with increased discretionary effort.

As usually Mary Poppendieck provides good advice: Mary Poppendieck webcast on Leadership in Software Development. The idea that bonuses are bad management is one of the more difficult management improvement ideas for people to accept. See related posts for much more on the problems with them and what to do instead.

Related: Interview with Mary Poppendieck – The Defect Black Market – Deming on the problems with targets or goals – Incentive Programs are Ineffective – Problems with Bonuses – Measuring and Managing Performance in Organizations

“Pay for Performance” is a Bad Idea

Posted on July 21, 2008  Comments (0)

Pay for performance is a bad investment by Pete Waters

“Teacher pay set by the results” was the headline of a (Baltimore) Sun article I read the other day which suggested that “performance-based bonuses (were) cropping up across Maryland” in our state education system. Bonuses would be given to teachers and principals that were successful in raising test scores of students.
…
One of the many shortcomings of the program was that job duties were often not well defined, and favoritism was difficult for most supervisors to avoid.
…
Deming specifically considered “performance appraisals, merit ratings and annual reviews” as one category under the heading of Seven Deadly Diseases of Management. He thought that the notion of “teamwork” was destroyed by these evaluations. Deming further believed that the morale of the organization suffered because of these individual evaluations.

As Deming said (page 102 of Out of the Crisis): “The idea of a merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for; motivate people to do their best, for their own good. The effect is exactly the opposite of what the words promise.” Understanding enough about managing organizations to know why it doesn’t work is not easy – which I think is a big reason why people go for the nice sounding, but flawed idea, I think. Read our posts on performance appraisals and the works we reference to learn.

The Defect Black Market

Posted on April 18, 2008  Comments (6)

The Defect Black Market

It all started a week before, when the CTO of Damon’s midsize warehousing and transportation company in Northern California announced an innovative program to motivate employees and boost the quality of their logistics software. For every bug found by a tester and fixed by a programmer, both would get $10.

Well, this doesn’t sound very well thought out. Bonuses often distort behavior. Dr. Deming was not against such targets and bonuses because he thought they would not result in bugs being fixed: Dr. Deming on the problems with targets or goals. It is a question of how that will happen. The system being distorted is the most likely result of any such system.

Everyone worked a bit harder the next day. Testers made sure to check and double-check every test case they ran, while developers worked through lunch to fix their assigned bugs. And it paid off. On that second day each had earned an average bonus of $50.

Everyone worked even harder on the third day. On the fourth day, however, the well had started to dry up. The testers ran, re-ran, and re-ran again the test cases, but they could only find a handful of issues. The developers strained the issue-tracking system, constantly reloading the “unassigned bugs” page and rushing to self-assign anything that appeared.

And then something strange happened at lunch. Instead of going out to eat with his usual teammates, one of the developers went out with a tester. Soon after, another developer went out with another tester. Within a few minutes, almost all of the developers had paired up with testers.

As the developers returned from lunch, they immediately got to work. Instead of scavenging for newly found bugs, they worked on “code refactoring” and new functionality. And as soon as they deployed their changes, testers found bugs — minor, obscure bugs that a developer could easily overlook. And just as quickly as testers found bugs, the developers were able to fix them and re-deploy. By the end of the day, developers and testers had earned an average of $120.

Continue reading →

Losses Covered Up to Protect Bonuses

Posted on March 24, 2008  Comments (5)

Does it surprise you to learn traders would cover up losses to protect bonuses? It shouldn’t, it happens over and over. Would it surprise you that almost any bonus (or quota) scheme increases the odds that the data will be doctored to meet the goals? It shouldn’t. Intelligent measures to make such doctoring difficult can help reduce the practice. But it is a likely risk of any such goal. As we have quoted Brian Joiner as saying: there are: “3 ways to improve the figures: distort the data, distort the system and improve the system. Improving the system is the most difficult.” So it is no shock that distorting the data is often the tacit people use (especially when the rewards are great or the punishment for missing is severe).

Of course the people that take unethical or illegal action are responsible for their actions. But managers that set up poor systems and then get poor results should not be surprised. You mainly read about the exciting distortion of data – but there is much more such distortion that doesn’t seem interesting enough for the press.

Traders at top investment bank ‘covered up losses to protect their bonuses in £1.4 bn scam’

A top investment bank said yesterday that some of its traders had tried to protect their massive bonuses with a £1.4billion scam. Credit Suisse was forced to admit it will pay the price for the traders’ ruthless scheming by sinking into the red. All the traders involved – some of them based in London – have been fired or suspended.

Shares in the bank, which is based in Zurich, tumbled 7.5 per cent yesterday. Credit Suisse admitted it had discovered intentional “pricing errors” by a small number of traders involved in complex investments linked to the mortgage market.

Related: Problems with Bonuses – Be Careful What You Measure – Measuring and Managing Performance in Organizations – Another Quota Failure Example

Problems with Bonuses

Posted on April 3, 2006  Comments (5)

What sort of bonuses should we pay? by Seth Godin:

Money, it’s been shown time and time again, is a demotivator. I’m not talking about a fair or even generous salary. Being a cheapskate is no way to find a great employee. But once people have joined your team, incremental money–bonuses and the like–usually demotivate people.

He is right. Why salary bonus and other incentives fail to meet their objectives by Dale Asberry.

Lean Manufacturing Visionary Jim Womack On Frontiers Of Lean Thinking by Jim Womack Continue reading →