Interesting discussion in the FT last week. Anthony Carey, Mazars, in response to Andrew Hill's article 'Bonuses are the enemy of progress', made a good point in his letter to the editor about how bonus schemes impact culture and that boards should be more intentional about the culture they want to create and therefore the bonuses they award.
Bonuses send a powerful message to the organisation about what is valued - is it simply seniority and financial performance that lead to long term health of the business? More and more we understand that fair compensation is what's important - it's a hygiene factor that you have to get right.
Research suggests that sustainable motivation (and resulting increases in productivity and profitability) comes more commonly from intrinsic factors such as purpose, autonomy over your work and your ability to improve and develop.
If the FT are writing about culture you know it's rising up the corporate agenda. That gives me great hope.
What is clear is that how bonuses are awarded gives strong signals, intended or otherwise, on the corporate culture that actually exists in the organisation, for example the extent to which it is hierarchical, whether the team or the individual is pre-eminent and the areas of financial or non-financial performance which are really valued. Such factors will undoubtedly have an impact on the motivation and performance both of those within a bonus scheme and those outside of it. Many boards need to spend more time determining their desired organisational culture and shaping their bonus schemes around that rather than letting their approach to bonuses accidentally determine their culture.