One of the most damaging management practices in business today is the individual bonus – “do this and get that”, a practice that now has also found its way into the public sector. 

There are two main reasons why organisations operate with individual bonuses, but they are not related. The first is a market reason; “We have to be competitive”. I fully accept this one, but there are many ways of being competitive. Individual bonus does not have to be on the list. The Beyond Budgeting pioneer Handelsbanken has had no problems whatsoever with recruiting great people without offering individual bonuses. This is true even in the UK, where it is the fastest growing bank in that market, and thus requires a lot of new staff.

The second reason is quite different; “Individual bonus is both good and necessary for motivating people”. This is where it all goes wrong.

I can hardly think of any other area where there are bigger gaps between what business believes in and what research documents. There are fifty years of research with very clear conclusions, telling us that individual bonus can be highly effective under the following circumstances; when there is little motivation in the job itself, where measuring is easy and where quantity is more important than quality. So, for picking carrots, simple sales work (maybe) and similar jobs, it does motivate.

But, when we move to more complex “knowledge” work, money loses its motivating power to Purpose, Mastery, Autonomy and Belonging. The feeling of being part of something big, bold and important, the joy of getting better at something, the freedom of not being micromanaged, and the power of teamwork and togetherness are all more powerful motivators than that bag of money. What they all have in common (beyond the fact that they all come for free) is leadership. They all require good and solid leadership efforts, which of course is more demanding than dangling carrots in front of people.

I have personally been on individual bonus schemes for more than twenty years. Of course I enjoy the money, but if someone believes that this is what motivates me, they haven’t done their homework.

I have however no problem at all with common bonus schemes, on the contrary. A shared scheme with everybody onboard, driven for instance by company performance, has nothing to do with dangling carrots. They can still motivate, but more indirectly through a common recognition where fairness is key.  

I am optimistic, though. There are positive signs out there. The Nordic insurance giant If has just abolished individual bonuses in their customer center, in favor of a common bonus scheme and somewhat higher base salaries. The results? Better employee and customer satisfaction, and improved business performance.

Even the management consultants seem to be waking up. It began with recommending their clients to move away from the traditional performance reviews and ratings, and making the link to pay more assessment based. Several of the big firms have actually done this themselves (it is not always the case that they take their own advice…). Some have also moved towards more common bonus schemes, a sign that I hope will soon result in a strong and unified message from this powerful part of the business world: Individual bonus is incompatible not just with what research tells us. It is also very much in conflict with the spirit of Lean and Agile, which so many of their clients have been or are currently implementing. The focus on team, flow and customers in these concepts are the very opposite of what is coming out of “do this and get that”.

The article was first published in Unit 4 Prevero Blog