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Jurgen Appelo calls himself a creative networker. But sometimes he's a writer, speaker, trainer, entrepreneur, illustrator, manager, blogger, reader, dreamer, leader, freethinker, or… Dutch guy. Since 2008 Jurgen writes a popular blog at www.noop.nl, covering the creative economy, agile management, and personal development. He is the author of the book Management 3.0, which describes the role of the manager in agile organizations. And he wrote the little book How to Change the World, which describes a supermodel for change management. Jurgen is CEO of the business network Happy Melly, and co-founder of the Agile Lean Europe network and the Stoos Network. He is also a speaker who is regularly invited to talk at business seminars and conferences around the world. After studying Software Engineering at the Delft University of Technology, and earning his Master’s degree in 1994, Jurgen Appelo has busied himself starting up and leading a variety of Dutch businesses, always in the position of team leader, manager, or executive. Jurgen has experience in leading a horde of 100 software developers, development managers, project managers, business consultants, service managers, and kangaroos, some of which he hired accidentally. Nowadays he works full-time managing the Happy Melly ecosystem, developing innovative courseware, books, and other types of original content. But sometimes Jurgen puts it all aside to spend time on his ever-growing collection of science fiction and fantasy literature, which he stacks in a self-designed book case. It is 4 meters high. Jurgen lives in Rotterdam (The Netherlands) -- and in Brussels (Belgium) -- with his partner Raoul. He has two kids, and an imaginary hamster called George. Jurgen has posted 145 posts at DZone. You can read more from them at their website. View Full User Profile

The Bonus System

02.03.2013
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A practice that has infiltrated the western business world like a pestilence in a shanty town is the annual bonus system. The idea of this practice is that managers give workers targets, and calculate annual bonuses which usually depend on people’s performance ratings, job position, salary, overtime, age, shoe size, and a host of other variables. The common rationale behind the bonus system is to incentivize performance. But actually, it stinks.

Bonus system color

Decades of research has confirmed, again and again, that bonus systems rarely have a positive effect on people’s performance when they are involved in creative knowledge work [Pink, Drive] [Kohn, Punished By Rewards]. On the contrary, the effect is just as likely to be negative [Fleming, “The Bonus Myth”] [Spolsky, “Incentive Pay Considered Harmful”]. There is so much wrong with traditional incentive programs, it is impossible to list all their problems. But I feel incentivized to give you the most important ones here:

  1. People get addicted to regular rewards, and if they don’t get their anticipated reward, they will feel disappointed or punished. This ultimately destroys motivation and thus performance. [Kohn] [Pink]

  2. Individual rewards disrupt collaboration, which is crucial in creative knowledge work. It stimulates competition and cheating, which destroys relationships between workers, and also between workers and their managers. [Kohn] [Fleming] [Pink]

  3. Traditional bonus systems rely on objective measures, but reality is far too complex to capture in numbers. The metrics ignore the soft side of great performance, including teamwork and collaboration. [Kohn] [Spolsky].

  4. Research shows that rewards distract people from complex work, disrupt creative thinking, and increase people’s stress levels. This causes them to play safe and prefer easy tasks, while innovation requires the opposite: taking risks and doing complex tasks. [Kohn] [Fleming] [Pink].

  5. The research also shows that bonuses undermine intrinsic motivation and altruism. As soon as rewards are handed out people start to think, “They pay me extra for this work thus it cannot be fun, interesting, or good.” [Kohn] [Fleming] [Pink]


It should also be noted that bonus systems are usually based on company profits. But most workers cannot directly relate their work to their company’s profits, because most of what influences profits is beyond their own control [Bomann, “Bonus Schemes Should Be Handled with Care”].

Merit-money-mini-150This text is part of Merit Money, a Management 3.0 Workout article. Read more here.

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Published at DZone with permission of its author, Jurgen Appelo. (source)

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)

Comments

Oleksandr Alesinskyy replied on Wed, 2013/02/06 - 5:51am

Bonuses are  not so bad - a salary is much more disruptive for a creative thinking, intrinsic motivation and altruism :(

Andrew Wilson replied on Wed, 2013/02/06 - 10:52am in response to: Oleksandr Alesinskyy

I once worked for a company that paid out a 20% fiscal year end bonus using a formula that included your personal, the business unit and the company's performances. The measure of "performance" was a set of goals that were mutually negotiated at all three levels. Consequently, it was possible for another business unit to set goals that became unattainable and would drag down the company's performance and hit your personal bonus.

Bonuses are fine when the factors determining your personal bonus are related to you specifically, but once you factor in other elements then it can become really demoralizing when you've worked nights and weekends and see your bonus get cut for reasons well out of your control or even influence. 


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