Wednesday, 11 February 2009

Bring on my Bonus

If ever there was a story that would elicit the response, “you’re having a laugh … seriously?” then the whole bonus debate is it. Digging into the comment and opinion on this has shown me just what I have been missing.

For a start let’s stop all this nonsense about a bonus culture being a bad thing. The word “bonus” is Latin for “good”. Now we all know that anything where the root of meaning is based on an ancient classical language is a fundamental truth. Therefore bonuses are by definition a “good thing” and my conscience is clear!

Next not having any money does not mean that you can’t pay a bonus. RBS, having lost £28bn of theirs and everyone else’s money is still seriously intending to pay bonuses to its staff. Gordon Brown has demonstrated how to do this on a national scale. So if it’s a “good thing” and you don’t even need any money, what’s the problem?

You can even get a “guaranteed bonus”. As long as you turn up, answer a few phone calls and stare at your computer screen as if you know what’s going on then you get your bonus, come what may. You even know how much it is going to be, which helps with planning luxury holidays, ordering a Lamborghini etc.

The trend now is for the basic salary, plus of course all accompanying benefits, to be paid simply for occupying the position. If you are actually expected to do anything you only do it if there is a bonus attached, which is only fair. After all simply being Chairman of 43 different companies is a big enough job in itself. And of course each bonus must also be many times greater than the salary, to reflect the relative difficulty of “doing something”.

The public sector has gone further. Here, there is no need for a guarantee. Because bonuses are a “good thing” civil servants are now being awarded them for doing exactly what they always have done, as inefficiently as they always did. As the public sector mostly does what it has always done, the bonuses are de facto guaranteed.

This logic has been taken further in what I call the “Twilight Zone” between the public and private sector. This is where something must appear to be getting done, but must not disturb the status quo so it actually never gets done. This is truly tricky work. One of the stars of the Twilight Zone (poor pun intended) is the SFA. (Financial Services Authority – I shall continue to call them the S****F***A** until they do actually do something). Significant bonuses have been paid for not spotting the Northern Rock problems, not spotting the risks in HBOS even when brought to their attention and completely missing any signs of the impending credit crunch. Still room for improvement though, hence the appointment of Sir James Crosby, previous Chief Exec of HBOS as the SFA Deputy Chairman (now resigned!), who knows all about bonuses.

An interesting twist on this has been applied to the Olympic Delivery Authority. Here the directors will be paid a bonus “if they deliver the Olympic facilities in time for the Olympic Games in 2012”. Without this explicit incentive it could easily slip their minds when these facilities are required and for which particular event. “What, you need them finished by next summer? Can’t they reschedule for about 18 months later? Their diaries can’t be booked that far ahead”. It also saves Tessa Jowell having to phone them up saying things like “only 36 months to go you know, have you ordered the seats yet?”

So a bonus is a good thing and no money is no barrier to payment. A guarantee helps but the public sector experience shows this is no longer necessary because a bonus can become an entitlement. Make sure that there is a clear differentiation between salary and benefits, which are simply for the position and a bonus which is for actually doing something. Even better if all or part of the bonus can be paid for succeeding in doing nothing.

This is the remuneration package I need to negotiate for myself. On second thoughts I’ll book the luxury holiday and order the Lamborghini first. Then I’ll know how much bonus I deserve.

Seriously though … Financial incentive devices can skew behaviour and results in alarming ways. They need to be carefully thought through and regularly reviewed. Two quotes explain why. “Tell me how you will measure me and I will show you how I will behave”. (Eli Goldratt The Goal) “You need to be careful what you ask for, more than likely you’re going to get it”. (Ralph Waldo Emerson) If you incentivise people to earn large amounts of money in a short time that is exactly what they are likely to do. The rest is collateral damage. Take extreme care.

“You’re Having a Laugh … Seriously?” is brought to you by Steve Goodman and Tony Ericson of ChangeWORLD. For even more serious information and comment go to our website and our other two blogs:- Exceeding Expectations & Business Bloop of the Month Award.