Tag Archives: bonus

Contrived System of Reward

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“But the worst part of my little bonus system,” Reggie confided, “was not that my managers manipulated the numbers, but that the system I created changed the mindset. I corrupted their thinking. Digging out of that hole is going to take time. And some of them will not survive. I created a contrived system to reward something I thought was good.

“And the winner of my little contest, the successful candidate who gets the position as the new division VP, is going to think he got the job by gaming the system. It doesn’t matter how I explain it, in his heart, his experience will tell him that he got the job by playing with the numbers.

“It is really true,” Reggie continued, “the behavior you reinforce, is the behavior you get. I created the incentive. I got the behavior.”

“If you are going to create a different environment, what has to change first?” I asked.

“All crumbs lead to the top,” Reggie said. “I have to change first.”

Competition and Manipulation

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“So, you’re the culprit,” I repeated. “What specifically did you do that was so counterproductive?”

“I remember, it wasn’t anything extreme. We have different sales channels and different product lines, with outside sales, inside sales, internet sales. I began to hand out bonuses for each department with the highest gross margin, another for the highest revenue in the quarter.

“It’s funny, now that I think about it, when I handed out those bonuses, the room was quiet. There was no jubilation or high-fives, just a nod and a polite thank you.”

“Tell me about the down-side?” I asked.

“I found out later,” Reggie explained, “that each department gamed the gross margins. They would pump up the pricing in the last week of the quarter and then rebate it back to the customer in the next quarter. In the end, we still got our standard margin, but each department manipulated the bonus system. And all the progress we made on cross-selling was lost.

“And it’s not so much that they had to pay the piper in the next quarter, but look at all the wasted energy, counterproductive to what we stand for. And the last thing on our mind was doing a good job for the customer.”