Bonuses Don’t Work? It’s Elementary, Dear Watson

I read an article from the New Zealand Herald by Simon Caulkin (3.16.09) that caused me to alternate between depression and excitement. The title of the article is: Bonuses boost performance? Sorry, but it’s the very opposite.

My depression comes form the fact that it is just more evidence that people like Mr. Caulkin don’t have even an elementary understanding of behavior -- how to get behavior and how to sustain it. The excitement is that because our business is about helping business people understand and apply the science of behavior to change the way the world works. His article tells me that there is a lot of business yet to be done.

The gist of the article is that bonuses don’t work, and yet it is full of examples about all the egregious behavior created by them. Now Simon, you can’t have it both ways. Either bonuses work to change behavior or they don’t. The direction of the behavior change—desired or undesired—is another issue, but he clearly does not see that. He says, "The bonus culture is so ingrained it comes as a shock to find – it’s worth spelling it out – that evidence to show monetary incentives improve performance is simply non-existent. On the other hand, studies demonstrating that it is counterproductive are plentiful." (Bold typeface is Mr. Caulkin’s.) If people drown while swimming is the solution to get rid of water?

Mr. Caulkin’s problem, although he doesn’t know it, it that bonuses work all too well. I agree that bonuses as they are implemented don’t always increase performance, that they are often excessive, that they drive the wrong behaviors but that is a fault of the design, not the bonus. If bonuses didn’t work there would be no need to talk about them since they would produce no behavior change. However, they do produce behavior change and most of what reaches the news is behavior that is not productive or desirable. If you Google, executives in jail, you get about 10 million hits. But to say it again, it is not the fault of the bonus, but of its design and implementation.

Caulkin suggests that the solution is to: Pay people well and fairly (Bold his). Who could disagree? He gives no details and we know where the devil is. We know one thing very well, you get more of the behavior you positively reinforce. If you get the wrong behavior, change the contingencies of reinforcement. Designing a properly structured bonus system requires real effort and new learning—doing this naively is a very bad practice indeed. Spend the time to do it right and change the way your company works!

In the current economic condition of the world, I submit that now is the time to increase bonuses, not eliminate them. Designed and implemented correctly they can capture the discretionary effort of all employees, including the senior leaders, that organizations need now. Poorly designed and implemented, they can cause all the problems that make the news. The solution is elementary to those who understand the science of behavior. Unfortunately there are many in business who don’t.

Posted by Aubrey Daniels, Ph.D.

Aubrey is a thought leader and expert on management, leadership, safety and workplace issues. For the past 40 years, he has been dedicated to helping people and organizations apply the laws of human behavior to optimize performance.