From the Ask Tom mailbag:

In response to my discussions over the past few days with Reggie over incentive (bonus) compensation.

Question:

I understand in this situation that the Manager specifically stated that he was holding back compensation and distributing it as bonuses because he did not trust his people to stay motivated, but is it your belief that bonuses are typically a bad idea. My work is strictly commission, payment for outcomes, and from what I’ve read, this is one of the best compensation systems so that you stay real in your work and don’t become complacent. It keeps me in touch with the results that I aim to achieve and prevents me from hitting a ceiling on my earnings. While I was salaried, I was probably still one of the highest achievers, but I bet I work even harder now. What do you think?

Response:

Most incentive, or bonus systems create distrust, as Reggie is experiencing. Reggie would attempt to describe the system in more positive terms, like a reward for “extra” effort, but the net effect is still the same. It violates the contract that a person would give their best effort every day.

That being said, there are circumstances where people are genuinely motivated by compensation “at risk.” You do not want to see a cap on your earnings. You have the entrepreneurial spirit and are willing to take your lumps by your results even when things don’t pan out. Sales roles and the people in those roles are often in this circumstance. I see this relationship, not as a W-2 employee under a destructive, manipulated bonus plan, but as a 1099 independent contractor who truly wants to live at risk. This risk and this relationship is perfectly appropriate for this circumstance.

Let’s hear your thoughts. -TF

Reggie looked at me sideways. “Do you mean that this whole complicated issue regarding incentive compensation, that we hired expensive consultants to help us with, may be a guided misadventure?”

“You tell me,” I replied. “What type of environment do you create when you tell people that you are holding back part of their compensation because you don’t trust them to do their best?”

“You just said it, it creates an environment of distrust,” Reggie declared.

“And what kind of behavior does this distrust create?”

“Whooo! It’s all over the board. Some people work really hard, appear very dedicated and some people try to figure out how to manipulate the system to their advantage. I don’t know. Come to think of it, the people who seem committed, who perform the best, are the kind of people who would work very diligently even without the bonus.”

“And would you describe those people as stupid for working so hard without having a bonus as a carrot?”

Reggie shook his head. “No. I would have to say that is just who those people are. The words are –dependable-integrity-earnest.”

“So, what do you think this incentive plan is accomplishing?” -TF

“How else are you supposed to motivate people?” Reggie asked. “I look around at what other companies do and bonus systems are used almost everywhere.”

“Why do you think bonuses are used in most companies as a motivation tool?” I asked.

“Well, I just don’t know of any other way to get people to go the extra mile, to give their best effort,” Reggie defended.

“I think you have your answer.”

Reggie looked puzzled.

“That’s your answer,” I continued. “Most companies use bonus systems, because they don’t know any other ways to properly motivate their teams.” -TF

“So, you clearly understand that you are the problem?” I asked. Events were becoming clear for Reggie. His incentive programs were backfiring. In the short run, his company’s margins were not compromised, but long term, he had created a culture cloaked in clandestine competition. His managers had gamed the system to beat margin quotas.

“We had hired a compensation consultant to help us structure this incentive program,” Reggie defended. “They were very professional and seemed expert in their process.”

“Tell me, Reggie, what impact did this incentive compensation have on your manager’s contract?”

Reggie moved his head an inch, “What do you mean, what contract?”

“You know the contract. The contract that says –You get paid every day to come to work and do your best? To focus your efforts where they are most effective? To give us your best effort?”

Reggie didn’t know how to respond. “Yeah, but that doesn’t seem to work around here. People don’t come to work and do their best unless you, you, you hold some of the money back and give it to them as a bonus.”

“So, what you are saying is that you don’t trust them to do their best, so you don’t give them all their money unless they show their best effort? Then you give them their, well, you call it a bonus.”

Reggie slowly nodded his head.

From the Ask Tom mailbag:

Question:

You have been talking about the four elements of success. How does a goal figure in to success?

Response:

All behavior is goal directed behavior. If, as a Manager, you want to understand the behavior, find the goal that’s driving the behavior.

But the impact of the goal on the intensity of the behavior still has to do with interest (passion). We have interest only in those things that we value, which is why values are so important.

The reason why the values discussion is so important is to determine what will light up the interest (passion) of an individual and is that interest aligned with the goals of the organization.

If you have alignment of interest and goals, you will not have issues related to motivation. Without that alignment, the goal is meaningless and will not drive behavior. -TF

“What did you learn?” I asked. Martin had finished a couple of days speaking with his team about their individual values.

“I gotta tell you,” Martin started, “I have never had this kind of conversation with my team before. I rounded them up the next morning and before we started the shift, I just floated a couple of questions.

When we work well together, what is it that we do to make that happen?

What could we do more of, to be more effective as a team?

“All of the things they talked about were heavy with value words. Not only do I have more insight into what makes my team tick, they have a better insight. They have never talked about this stuff before.”

“And, how is this going to help you, as a manager?” I asked.

“Easy,” Martin replied. “Something as simple as everyone showing up on time. No one really understood how important it was to show up at 8:00am. Up until now.” -TF

“So, let’s get back to the conversation part. How do you get people to talk about values in a way that is helpful?” Martin insisted.

“It is really very easy,” I said. “You simply ask them.

“I know you have tried this before and you got the lizard eye stare, but try the question differently, not about them, but about the environment around them. Often people cannot talk about themselves, but they easily see things around them. Here is how the question goes.

What do you value in a team member?

“When they respond to that question, they are really talking about themselves. Here are some more.”

What are the positive things your team members do to make this a better place to work?

Think about your best manager. What are the characteristics about that person that set him apart from other managers?

When you have a really tough problem to solve, what are the things that are really helpful to the process?

Martin was getting the picture. He excused himself from the room. He had some questions to ask his team members. –TF

Martin was waiting in the conference room when I arrived. He had a single sheet of paper in front of him.

“That was easier than I thought,” he started. “I simply observed the way my team members dress, and it was curious how quickly I noticed the difference between my top performers and the rest of my team.”

“Observing physical characteristics can give you important clues about a person’s value system. People communicate a great deal about themselves without speaking a single word.” Now it was Martin’s turn to nod his head.

“Does this have anything to do with habits?” he asked.

“What are you thinking?” I replied. I could see the wheels turning.

“Well, the fact that my top performers dress differently, I mean neater, cleaner, more polished, is not because they consciously thought about it. It seems that is just who they are. And it comes out in their work product. A person who takes pride in their personal appearance, also takes pride in their work product.”

“Why do you think that happens?”

Martin paused. “I am beginning to see a clearer connection between values and behavior. Even if people don’t think about it, consciously, that’s why they do what they do.”

“So, how important is it, for a manager, to understand the value system of team members?” -TF