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The B word

11/01/2010

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I’m going to come straight to the point. Paying bonuses is not evil.

Rewarding people for exceptional performance, sharing in the success of a company: these things are not bad.  Yet for some reason we’ve allowed a whinging liberal, Guardian reading, granola sniffing elite to portray bonuses as corporate greed. And that is a steaming heap of festering bollocks.

The issue isn’t with bonus schemes, the issue is with feckless HR and Compensation professionals who won’t stand up to CEOs and FDs and allow the construct of crap schemes.  The issue is with bonus schemes that pay out when there is corporate failure. The issue is with schemes that feel unfair.

Think about it. When John Lewis announces that all its staff will be receiving a bonus, the same liberal elite cheer and commend them for being good to their staff.  But it is a bonus…so what is the difference?  That they are all receiving a payment?  But rather than focus on the £100,000 plus bonus that the MD of the company Andy Street was paid on top of his £500k plus salary, they focus on the staff as a good news story.

Funnily enough though, no-one focussed on the bonuses being paid to the banking staff in the local branches and call centres did they……?

In all of the companies that I have worked for that operated a bonus scheme, everybody participated and everyone was rewarded.  We have and we continue to work hard to make sure that the schemes are fit for purpose, that they reward everyone and that they only pay out when we have been successful as a corporation.  And there is nothing wrong with that. I’m not ashamed to operate a scheme and I’m not ashamed if and when I benefit from that scheme.

There is nothing wrong with making a profit.  And there is nothing wrong with sharing a profit with the employees.  Next time you hear someone criticizing bonus, ask them if they have ever had one. If not….you might want to question what other motives lie beneath.

Let’s put an end to this pathetic group think once and for all.

4 Comments leave one →
  1. 11/01/2010 15:44

    Agreed. The only problem is when the CEO gets a million dollar bonus even though the stock price has plummeted 30% in a year, he’s sold company assets (gee- why would it be a bad idea for a paper company to sell its timberlands?) and 1,000 employees have been laid off. Rewarding performance is appropriate; rewarding incompetence is not.

  2. Nimrod permalink
    11/01/2010 17:37

    I agree with CF. One of the main reasons that I left Corporate America about a year ago was exactly that. VP’s and above were getting bonuses bigger than their annual salary because they had maintained profitability by laying off and outsourcing as many admininistrative and IT jobs as they possibly could, and making the rest of us miserable with overwork and stress. There was some talk about not paying bonuses to the “little people” at all. They finally paid us but reduced the payout because the actual profit (not the margin) was less than the budget. Of course, the accounting, HR, IT, etc. departments have no ability to influence profitability, but they needed some way to “punish” us. Sales people, however, had record income, because they decided to base their commissions, etc. on forecasts, rather than budget (or they would have been living on minimum wage). So yeah, if you want to use bonuses as compensation, at least be fair about it, base it on things the person can actually control, and pay it out when due, rather than streching it out until the end of February just to increase cash flow in a slow month.

  3. garethmjones permalink
    11/01/2010 19:04

    Agreed, but unfortunately comparing middle management/lower rank bonus payments and top level payments is sometimes like comparing apples and pears. Sure, some HR anc Comp folk can stand up to the CEO and FD but most of the time they are over ruled anyway by the rest of the rem com self servers. And the problem is not with the bonus, per se. Its the amount.

    We are all aware of the problems with the consequences of high variable remuneration i.e. when bonus or commission forms the majority of the pay packet. Many low level and highly sales oriented roles are commission or high bonus based, usually with poor customer consequences. Think double glazing salesmen, timeshare sales people. Recruiters even!! The high variable drives self interest, not public or wider organisational interest.

    As you go up the corporate ladder, the bonus element drops from 90% of pay to something mroe like 30%, sometimes a bit more, sometimes less, but pretty much always at middle management level, the basic salary is the core of earnings.

    Go right up to the top however, and guess what? In comes highly variable again – a CEO on a base of £500k can easily pick up £5m for the year in total rem. Thats back to the self interest, high risk, and self oriented behaviour territory.

    Indeed, I was lucky enough to see Ram Charan, business consultant and Harvard Professor dissect the collapse in the global economy and he cited this very issue – highly leveraged executive pay – as a fundamental influence in the key poor decisions that led to the overall collapse of the global markets.

    Bonus are great. But they should be exactly that – a ‘bonus’ i.e. a bit extra, ‘the additional bit’ NOT the vast majority of the reward otherwise they effectively become executive ‘commission’, driving all the wrong behaviours and turning the execs into second hand car salesmen.

    Or worse, recruiters. 😉

  4. 11/08/2010 10:56

    @class factotum – “Rewarding performance is appropriate; rewarding incompetence is not.” – I couldn’t have put it better myself! 🙂

    @Nimrod – Thanks for the comment and welcome! Any CEO that allows that to happen deserves to be a business failure in my opinion…..

    @garethmjones – “Bonus are great. But they should be exactly that – a ‘bonus’ i.e. a bit extra, ‘the additional bit’ NOT the vast majority of the reward otherwise they effectively become executive ‘commission’, driving all the wrong behaviours” – totally agree…..a bonus….is……a bonus!

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