Bonuses don't work well because they are too temporally distant from the work you do. For example, typically you get an annual bonus, but that might be for work you did a whole year before (and even more, with the time it takes to decide on bonuses, pay them out, etc.). There's just no way our brains properly can handle reward that is so distant in time. As a result, bonuses end up feeling either "expected" (if you always get roughly the same amount) or capricious/political (if there is a lot of variance).<p>Add to this that accurately rating employee performance is very difficult, and you get a huge disconnect between effort and reward. What this means it that employees will seek to game the system by identifying activities that give them a high gain in "review score" for the least effort. This leads to rent seeking, politics, stealing credit, and other such activities. Not everyone plays this game, but those that don't are at a huge disadvantage. I've seen people get the same performance rating where one of them did literally 5x the work of the other, just because of other factors.<p>Bonuses can only work when they are given soon after the work you do and are (at least somewhat) objectively-measurable. For example, sales commissions work well. I think signing bonuses are also pretty effective at luring a job candidate when they have multiple offers, because they get the money right away. But that's sort of a different scenario.
Bonus schemes can be extremely effective for retention. Partition comp so that enough turns up monthly that people don't struggle and add a significant bonus every N months and there is never a 'good' time for your employees to leave.<p>Best I know of was every three months as that's roughly the latency to change jobs - after a bad day in the office, the next reward is still close enough to distract from the alternatives.
I think the same is true of equity compensation schemes.<p>I understand the theory of aligning incentives, but in practice what I see is a bunch of perverse results. Rest-and-vest as well as all sorts of non-useful stress in times like these.
> <i>Another explanation is that the reward makes the work seem distasteful. “If they have to bribe me to do it,” a person might figure, “it must be something I don’t want to do.”</i><p>Logically this also applies to any form of compensation, say, your wages. (Hence the derogatory term "wages slave" from these who can afford not to depend on wages.)<p>The old recipe for that is to "pay your engineers so much money they won't know what to do with it" (can't find that quote from 1980s), but the realty market has adapted and likely made this a largely inefficient strategy.
First, this is from 1993.<p>Second, they make a lot of claims that at least go against my understanding of psychology - and with no citations, only mentioning their own book as a "source" at the bottom.
The main site didn't load for me, but this archive did: <a href="https://archive.ph/tCM6b" rel="nofollow">https://archive.ph/tCM6b</a>
All the discussion about bonuses being counterproductive rewards for performance proceeds from the assumption that bonuses are intended as a reward for performance.<p>Actually, bonuses are mostly a way for a company to be flexible in the amount paid to employees. If the company has a bad year, cutting salary will have people looking for the exits... but they <i>might</i> accept a smaller than usual bonus.
I once received an employment offer from a FAANG that was weighted heavily on the annual bonus. Like 1/3 of the total comp was 1st and 2nd year hiring bonus. I don’t get how that’s appealing since it seems like a guaranteed pay cut once those are done.
One problem with boni is that they become mali if one does not get what one expects. This is especially problematic when it affects the better part of a company's workforce. Then the company is demotivating their best employees.<p>A related hypothesis: There is an asymmetry because overvaluations do not have an equivalent motivating effect as undervaluations have a demotivating effect. Boni without an objective measure are therefore on average rather demotivating.
Within the context of software development, for best results get rid of the managerial barrier between engineers and the business; the original intent of Agile.
Bonuses (and the like) seem very different than piece work, which the author conflates. I worked for a few years doing piecework and the direct correlation between my productivity and my income was perfect as far as I’m concerned. I became better in every way - faster, better quality, more sensitive to the owner outcomes (profit).<p>In my subsequent 25+ years working in software (QA, Developer, Architect, Executive) the closest thing I’ve found is ownership participation (Options, ESSOP, etc.) which is too often a bad deal for employees because of various investor hijinks but generally helpful in creating alignment in both growth and efficiency. I’d prefer a bonus calculated based on the sum of growth and margin since it likewise creates alignment on the things that matter (in capitalism) but it’s very rare to find others that agree and support such a program at the investor/owner level.
Seems like this challenges the underpinnings of the free market.<p>So according to the article we can start taxing everyone 100% once their income is above a certain level.<p>And the output of the economy will be better.