Tag Archives: bonus

The Defect Black Market

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.

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Losses Covered Up to Protect Bonuses

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 tactic 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 billion scam’ [the broken link was removed]

A top investment bank said yesterday that some of its traders had tried to protect their massive bonuses with a £1.4 billion 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 BonusesBe Careful What You MeasureMeasuring and Managing Performance in OrganizationsAnother Quota Failure Example

Problems with Bonuses

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 [the broken link was removed] by Jim Womack Continue reading