[HN Gopher] For Best Results, Forget the Bonus
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For Best Results, Forget the Bonus
Author : damir
Score : 65 points
Date : 2022-10-08 07:37 UTC (1 days ago)
(HTM) web link (www.alfiekohn.org)
(TXT) w3m dump (www.alfiekohn.org)
| proaralyst wrote:
| The main site didn't load for me, but this archive did:
| https://archive.ph/tCM6b
| hizxy wrote:
| Bonuses tied to ARR when most people do not directly impact
| revenue.
| [deleted]
| Archelaos wrote:
| One problem with boni is that they become mali if one does not
| get what one expects. This is especially problematic when it
| affects the better part of a company's workforce. Then the
| company is demotivating their best employees.
|
| A related hypothesis: There is an asymmetry because
| overvaluations do not have an equivalent motivating effect as
| undervaluations have a demotivating effect. Boni without an
| objective measure are therefore on average rather demotivating.
| zeroonetwothree wrote:
| Bonuses don't work well because they are too temporally distant
| from the work you do. For example, typically you get an annual
| bonus, but that might be for work you did a whole year before
| (and even more, with the time it takes to decide on bonuses, pay
| them out, etc.). There's just no way our brains properly can
| handle reward that is so distant in time. As a result, bonuses
| end up feeling either "expected" (if you always get roughly the
| same amount) or capricious/political (if there is a lot of
| variance).
|
| Add to this that accurately rating employee performance is very
| difficult, and you get a huge disconnect between effort and
| reward. What this means it that employees will seek to game the
| system by identifying activities that give them a high gain in
| "review score" for the least effort. This leads to rent seeking,
| politics, stealing credit, and other such activities. Not
| everyone plays this game, but those that don't are at a huge
| disadvantage. I've seen people get the same performance rating
| where one of them did literally 5x the work of the other, just
| because of other factors.
|
| Bonuses can only work when they are given soon after the work you
| do and are (at least somewhat) objectively-measurable. For
| example, sales commissions work well. I think signing bonuses are
| also pretty effective at luring a job candidate when they have
| multiple offers, because they get the money right away. But
| that's sort of a different scenario.
| dilyevsky wrote:
| I've been working on software for more than a decade now at
| companies most of which implemented some form of kpi system.
| Ime nothing you do more than 1-2 months _before_ bonus is
| evaluated ever matters. You can ship some big things in the
| beginning of cycle and then hit a rough patch for a month
| before review and 90%+ of management will hang you out to dry.
| Or you can fuck around for better part of the year then ship a
| week before reviews are in and get a bonus /promo
| swagasaurus-rex wrote:
| Here's an idea to prevent such perverse incentives:
|
| All employees are part of a pool that evenly distributes a
| portion of the company's profits.
|
| The employee's incentives become tied to what the company wants
| most: income.
|
| This might create other incentives like trying to hire fewer
| people so as to not dilute the pool, but I can't think of a
| better heuristic than to tie the company's success into each of
| the worker's success.
| vulcan01 wrote:
| One issue with this system is that employees are incentivized
| to increase short-term profits at the expense of long-term
| growth. (Arguably this is already true of public companies'
| pressure from stockholders, but for private companies this
| may make a difference.)
| delecti wrote:
| Where I work, annual bonuses work partially like that, and
| partially based on personal performance. It's a target
| percent of your salary (around 10% depending on level), with
| multipliers for personal and company performance (ranging
| from 0-200%). This year my bonus was roughly 1/3 my base
| salary because the company performed well, and I received a
| good review. It certainly felt awesome, but at the same time,
| in a company of 100k+ employees, am I really personally
| responsible for how the company performs in any meaningful
| way?
|
| What I'm saying is, I think the GP comment is right, that a
| bonus scheme is unlikely to materially affect performance.
| ip26 wrote:
| That type of scheme does however help foster alignment,
| which can be more valuable than individual output. When the
| performance of the company is a bigger multiplier than your
| personal performance, you are financially more interested
| in the company doing well than your own stardom.
|
| It doesn't really drive people to work 80 hour weeks, but
| that isn't by itself valuable anyway.
| aqme28 wrote:
| Isn't this basically a reinvention of stock options?
| mhuffman wrote:
| I think they meant that the money would be paid out yearly
| from profits. Not trickled out to you in "virtual dollars"
| that may never be worth anything unless your company goes
| public or gets acquired.
| jbay808 wrote:
| Private companies can still pay dividends if they want
| to!
| rhyperior wrote:
| I'd more say it's a form of profit sharing, as are options
| and equity, but in a reliably valuable cash form as opposed
| to potentially valuable equity.
|
| If the bonus dollars are evenly distributed as proposed
| then it won't encourage competitive in-fighting that
| plagues some incentive systems.
| mhuffman wrote:
| >If the bonus dollars are evenly distributed as proposed
| then it won't encourage competitive in-fighting that
| plagues some incentive systems.
|
| I am not sure about that. I think the in-fighting would
| then come from people upset that other people that "did
| not contribute nearly as much as I did got the same
| bonus".
|
| People will always find a way to no be happy about
| something.
| rhyperior wrote:
| Some people will, sure, but some systems encourage it
| more than others IMO.
|
| If a company designs their bonus system to encourage
| individualism and thus explicit competition for scarce
| dollars, then it creates a game that people think they
| have to win at the expense of their peers. In these
| cases, they have a bonus pool (the "budget"),
| differentiated pay philosophy (pay for performance), and
| rarely have an objective criteria for assigning rewards
| (manager decides and makes a case). In that situation you
| get a lot more in-fighting because it's the way the game
| is designed.
|
| If you remove the competitive angle by assigning rewards
| equally (say, at a certain level of seniority you get a
| fixed bonus %; or, the company assigns a 20% bonus to
| everyone to share in the profits), then you are no longer
| giving people a game to win against their peers.
| dilyevsky wrote:
| Not contingent on your cap table structure
| somesortofthing wrote:
| This sounds like it'd stop working _really_ fast as the org
| grows. Low-performing /average employees will start to feel
| like their contribution to the pool is too small to justify
| additional effort while top performers will feel resentful
| that their work gets diluted among people who don't have as
| much impact.
| [deleted]
| cyb_ wrote:
| [1993]
| amelius wrote:
| Seems like this challenges the underpinnings of the free market.
|
| So according to the article we can start taxing everyone 100%
| once their income is above a certain level.
|
| And the output of the economy will be better.
| senko wrote:
| Congrats, you've just invented communism:
| https://en.m.wikipedia.org/wiki/From_each_according_to_his_a...
| amelius wrote:
| I just rephrased the findings in the article at a macro-
| economic level and came to the conclusion that the free
| market supporters were not telling the whole truth. That's
| all.
| ok123456 wrote:
| Just read some theory and jump right to fully automated
| luxury space communism.
| zeroonetwothree wrote:
| This article argues against a _particular_ form of
| compensation, not compensation in general.
|
| And in any case, "the free market" != "people are only
| motivated by money". All "free market" means is that voluntary
| exchanges are not regulated or restricted by the government.
| Indeed it has nothing inherently to do with money, if you want
| to trade your labor for a pile of corn that would be a
| perfectly fine free market transaction.
| lolinder wrote:
| "The free market" is not synonymous with "money as the primary
| motivator". All that a free market means is that we let natural
| interactions between people and groups of people drive the
| economy. It doesn't rely on any particular framework for how
| people choose what they want or how behavior is actually
| motivated.
|
| As an example: I choose to work at a job that pays less than I
| could get elsewhere because there are intangible benefits that
| matter more to me. I'm able to do that because the market is
| free. Within the company, I fight to keep those intangible
| benefits prioritized because I know that they are a major
| selling point that will get us engineers when we can't afford
| to pay SV wages. That's the free market at work, but money and
| incentive schemes don't factor into it at all.
| amelius wrote:
| > "The free market" is not synonymous with "money as the
| primary motivator"
|
| Of course it is not black/white like that.
|
| But people keep telling me that the free market is so much
| better than communism because there is an incentive to work
| (money).
|
| However, it seems, the truth is somewhere in the middle, and
| it seems closer to communism after a certain level of income
| has been attained.
|
| That is, according to the theory in this article.
| lolinder wrote:
| You or they misunderstand. The fundamental premise of the
| free market is that, in a large and complex system,
| attempts to exercise central control tend to go badly
| relative to just letting people figure out what they want
| and pursue that. It's not _money_ specifically that is the
| incentive to work, it 's self-interest in general. This is
| perfectly compatible with Alfie Kohn's idea that intrinsic
| motivation beats extrinsic motivation--intrinsic motivation
| is a form of self-interest.
|
| The primary ideological conflict between communism and the
| free market isn't over money, it's over whether it is
| possible for a centrally-organized economy to outperform
| one in which people are left to pursue their own self-
| interest as they see fit. The article doesn't address this
| question at all.
|
| (As an aside, central control versus free market is
| obviously not an either/or choice, and most countries'
| policies end up somewhere in the middle.)
| Negitivefrags wrote:
| I think the same is true of equity compensation schemes.
|
| I understand the theory of aligning incentives, but in practice
| what I see is a bunch of perverse results. Rest-and-vest as well
| as all sorts of non-useful stress in times like these.
| bombcar wrote:
| Equity compensation works for the CEO, where he has a notable
| and direct influence on the share price (whether that is a GOOD
| thing is another question).
|
| For normal employees, it's just a form of pay with extra hoops.
| I suspect much of these started with ways to get "around" cash
| flow requirements, etc, but now the accounting rules have
| caught up and it's not really worth it anymore, for anyone.
| ottoboney wrote:
| I'm not sure I agree with you that equity compensation is
| only beneficial for C suite level people.
|
| I think a lot of people in the Bay Area who work at large and
| small companies have benefited from rising stock prices and
| large amounts of their pay being equity. Look at the price of
| Apple stock over the last few years. Even a normal IC at
| Apple has made significantly more money due to their equity
| compensation being granted over 4 years.
|
| There are also many people who have been normal IC level
| employees at companies like Snowflake who gained tremendous
| wealth by them going public and being paid in equity. Sure
| there are some losers, but I think over a large sample size
| employees generally win by being paid in equity vs the cash
| price at the time equivalent.
| giantrobot wrote:
| > Even a normal IC at Apple has made significantly more
| money due to their equity compensation being granted over 4
| years.
|
| The equity compensation at Apple is ridiculous. For one
| they're super stingy with it. Thanks to the infestation of
| stack ranking only the top quintile or quartile of
| employees on any team (by whatever performance metric the
| manager decides upon) will get any RSUs. Upper management
| has no problem if all the RSUs allotted for a team go to
| only a single team member. There's a reason Apple really
| hates the idea of employees talking openly about
| compensation amongst themselves.
| bombcar wrote:
| You can approximate that with being paid more and buying
| company stock - but most would recommend NOT doing that.
| Pre-IPO stock options and grants are a separate discussion;
| I was thinking mainly of the equity portion of Google,
| Facebook, et al.
|
| It ALSO allows them to "pay" people the same even though
| total comp may be very different, (this looks good on
| reports about pay equality) AND it allows them to institute
| pay cuts without ever having official pay cuts.
| sokoloff wrote:
| Having a portion of pay that _automatically and
| transparently_ scales with company performance seems
| valuable and sensible. When the company outperforms
| expectations, the gains are shared. When it
| underperforms, the pain is shared.
| kelnos wrote:
| The problem is that each individual employee generally
| has vanishingly small individual impact on the company's
| performance. That can really hurt morale when the stock
| price goes down, often even when the company is doing
| just fine, or even well.
| sokoloff wrote:
| IME, it doesn't hurt morale worse than the company
| instituting broad-based salary cuts would, which is an
| alternative structure to accomplish a similar shared-
| success model.
| lazyasciiart wrote:
| My employer is making record profits every quarter and
| the share price is going down month after month. What
| shared success?
| sokoloff wrote:
| Share price is driven more by future expectations than by
| past performance. Your record profits are nice, but are
| history at this point.
|
| What matters is expectations of profits going decades
| into the future and the relationship to the risk-free
| rate of return (which has risen dramatically recently,
| due to the expected future devaluation of the dollar).
| zeroonetwothree wrote:
| The problem is stock price is often only loosely tied to
| "performance". Companies can be under- or over-valued by
| the market for many reasons.
| zeroonetwothree wrote:
| This is just hindsight bias. If these employees had been
| paid the equivalent additional amount in cash would you
| have suggested to them to invest all of it in their
| employer's stock?
| alehlopeh wrote:
| Somewhat tangential but couldn't another term for
| "hindsight bias" be "learning from the past"?
| lazyasciiart wrote:
| No: the point of hindsight bias is that you're able to
| make better decisions when you know how the future will
| go. Hindsight bias that those companies will all grow in
| that five year period doesn't change the way you would
| decide if you should invest in your employers stock
| _today_.
| minitoar wrote:
| I once received an employment offer from a FAANG that was
| weighted heavily on the annual bonus. Like 1/3 of the total comp
| was 1st and 2nd year hiring bonus. I don't get how that's
| appealing since it seems like a guaranteed pay cut once those are
| done.
| thanksgiving wrote:
| > I don't get how that's appealing since it seems like a
| guaranteed pay cut once those are done.
|
| As an outsider, one guess I can make is probably they expect
| you to work hard to secure promotions within those three years?
| lazyasciiart wrote:
| No, they expect you to either be too lazy to leave or to
| leave.
| minitoar wrote:
| I don't think it's common to get a 30% raise in nominal comp
| in 2 years from these companies.
| [deleted]
| [deleted]
| [deleted]
| TaylorPhebillo wrote:
| Was this Amazon? Generally equity would replace the cash bonus
| in subsequent years. Compensation then becomes somewhat
| uncertain, but if it became a huge pay cut at that company and
| nowhere else, it seems expected that lots of employees would
| quit. That might be partially intentional.
| sokoloff wrote:
| At Amazon, the initially granted tshares vest in a backloaded
| way. For every 6 months after you start, the vesting is (0%,
| 5%, 0%, 15%, 20%, 20%, 20%, 20%).
|
| The large signing bonus for year 1 and year 2 is structured to
| make up for the back-loaded vesting.
| mlhpdx wrote:
| Bonuses (and the like) seem very different than piece work, which
| the author conflates. I worked for a few years doing piecework
| and the direct correlation between my productivity and my income
| was perfect as far as I'm concerned. I became better in every way
| - faster, better quality, more sensitive to the owner outcomes
| (profit).
|
| In my subsequent 25+ years working in software (QA, Developer,
| Architect, Executive) the closest thing I've found is ownership
| participation (Options, ESSOP, etc.) which is too often a bad
| deal for employees because of various investor hijinks but
| generally helpful in creating alignment in both growth and
| efficiency. I'd prefer a bonus calculated based on the sum of
| growth and margin since it likewise creates alignment on the
| things that matter (in capitalism) but it's very rare to find
| others that agree and support such a program at the
| investor/owner level.
| nine_k wrote:
| > _Another explanation is that the reward makes the work seem
| distasteful. "If they have to bribe me to do it," a person might
| figure, "it must be something I don't want to do."_
|
| Logically this also applies to any form of compensation, say,
| your wages. (Hence the derogatory term "wages slave" from these
| who can afford not to depend on wages.)
|
| The old recipe for that is to "pay your engineers so much money
| they won't know what to do with it" (can't find that quote from
| 1980s), but the realty market has adapted and likely made this a
| largely inefficient strategy.
| zeroonetwothree wrote:
| I think fixed wages have less of an effect on this because you
| get used to them so you don't really think about them.
| Especially when you aren't working hourly, the relationship
| between the work you do and your pay is often very tenuous. So
| it can feel like you are doing the work for its own sake.
| swagasaurus-rex wrote:
| I commit a large part of my day to work. Whatever I do then I
| don't complain about I just do.
|
| The rest of the day is mine. I do what I want and don't feel
| regret about whatever I decide to do.
| JonChesterfield wrote:
| Bonus schemes can be extremely effective for retention. Partition
| comp so that enough turns up monthly that people don't struggle
| and add a significant bonus every N months and there is never a
| 'good' time for your employees to leave.
|
| Best I know of was every three months as that's roughly the
| latency to change jobs - after a bad day in the office, the next
| reward is still close enough to distract from the alternatives.
| growse wrote:
| Ah yes, "retention". Or: "we know how bad this place is to
| work, so we have to backload your pay to convince you to stick
| around once you work that out too".
| thaumasiotes wrote:
| > Partition comp so that enough turns up monthly that people
| don't struggle and add a significant bonus every N months and
| there is never a 'good' time for your employees to leave.
|
| Right after the bonus is paid.
| peteradio wrote:
| Might work, but I've used an upcoming bonus to secure a higher
| signing bonus.
| silisili wrote:
| You're absolutely right. Last company had a sizeable bonus, and
| while I wanted to quit years prior, 'bonus' and 'yearly 401k
| match' were always just around the corner.
|
| During my most recent company's negotiation, I was honest I
| wasn't going to do that again for that reason. Ended up
| negotiating from a 70/30ish split to a 90/10ish.
| bombcar wrote:
| This is what most bonuses are, salary that can be "clawed back"
| if you will.
| nopenopenopeno wrote:
| Bonuses that can be clawed back will never keep me around. I
| do generally appreciate my bosses, but I know better than to
| assume my hard work will be recognized. I work hard because I
| like being valuable. I stick around for a reliable income.
|
| Also, I generally have low opinions of coworkers who do
| anything else. Those desperate for recognition usually
| sacrifice something else in the process.
| zeroonetwothree wrote:
| So now you've created a situation in which your employees
| resent having to stay longer than they want. Is that really
| ideal?
| nlitened wrote:
| > Is that really ideal?
|
| I don't think "ideal" is possible, but if you have to choose
| whether valuable employees in average stay longer than they'd
| want or leave earlier than they'd want--longer is better for
| the business.
| earnesti wrote:
| Often it is not really well known if how valuable the
| employees are,
| personjerry wrote:
| First, this is from 1993.
|
| Second, they make a lot of claims that at least go against my
| understanding of psychology - and with no citations, only
| mentioning their own book as a "source" at the bottom.
| Alex3917 wrote:
| > with no citations, only mentioning their own book as a
| "source" at the bottom.
|
| The book has hundreds of academic citations. IMHO it's the
| single most important book for any entrepreneur to read.
| [deleted]
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