Monday, 25 January 2016

How to incentivise people?

I really like this article in the FT, no other paper could come close to looking at such a subject in a dispassionate way. Bankers after all, earn a lot of money, so for most of the media it is much easier to start with the shorthand; evil people.

That clarity lets them get on with whatever story it is they are hanging on evil people.

The thing is, although I am not a banker, I do work with them every day. And for seven years this has been very dispiriting. After the burst of the bubble bankers became (rightly so!) hated figures. Then their bosses looked at the losses and cut their pay.

The smart ones left and set up their own hedge funds, but this was the smart few, most hung on, changed jobs, spent sometime out of work and adjusted to new, less eye-watering income.

Plus bankers do the same as everyone else does; live slightly beyond your means to a greater or less extent. Earn more money, get a bigger mortgage, fly further for holidays, that kind of thing. Nobody thinks, ah yes, put it all away and save it for the rainy day. Who the hell wants to worry about rainy days (well, accountants do, but their not happy either...)?

Anyway,  I digress, this article suggests that financial incentives don't work - specifically the bonus. On this I would agree entirely, there is a whole cottage industry of angst and this is because the corporate impact and effect of a bonus is just wrong.

In a non-financial company, one that, er you own say, a big contract or win can make or break the company. Therefore you award yourself or the key staff well on the back of it. In a large organisation it is always a team effort, rewarding disproportionately one individual is never going to sit well. And as described above, they will fritter it anyway and not be happier.

Happiness is enjoying going to work and the people and things you do (caution; this is relative, some people working A&E). Being paid more or well is the benefit of a good job, not a feature.

So what should banks do? One thing I saw that worked well was in a US company, everybody earned around the same (and it was alot!), you got more in a good year than a bad year, but not too much - it was very meritocratic. Never seen anything like it in a UK company.

Another is to give people stability and a place to grow into in their roles, again, weirdly banks used to be good at this and are now terrible, when everyone thinks they are getting made redundant in a few weeks or months, today's paycheck counts for more.

I have had plenty of people in teams I manage leave over the years, but never for money, which I find instructive, capitalist that I am!


Anonymous said...

A co I am familiar with that is pretty successful, year in, year out, pays on the following principle; ordinary pay distinctly below par, plus, entirely discretionary, annual 'bonuses' of around 100% (pretty much for everyone).

Everyone is warned solemnly not to bank on the bonus: and while the formal stated principle is "entirely discretionary" the actual principle being operated is, "if the co can afford it this year" and in practice this is almost invariably the case, because performance is routinely excellent.

At the 100% level, total compo is pretty decent for the sector.

This seems to work the trick for all concerned. It gives the co a very desirable degree of flexibility in extremis; it is an automatic 'probation' mechanism for new staff, easy to withhold if they are slow to make the grade; makes the connection between results and rewards for staff, & keeps people on notice to pay attention to results; and is even a kind of enforced savings mechanism!

Proof of the pudding is the regularly fine performance. One is inclined to say "this obviously works".

Demetrius said...

Work is the curse of the drinking classes.

CityUnslicker said...

Anon - many thank, my fear for that method is in bad years everyone will leg it with a 50% cut in pay on offer. As a successful company they may not have had this yet, but it always comes sooner or later.

andrew said...



dearieme said...

In a job I had once, a system of bonuses was introduced, referred to - at least by hoi polloi - as "merit payments". I said that they'd do more harm than good because those deemed unmeritorious would be deeply pissed off. I was pooh-poohed. Then, quite quickly, it happened. A very able chum was denied a payment by his section head for no better reason that I could see but bloody-mindedness. Off he went, doubling his pay.

What brilliant management, eh?

Anonymous said...

"Plus bankers do the same as everyone else does; live slightly beyond your means to a greater or less extent. Earn more money, get a bigger mortgage, fly further for holidays, that kind of thing. Nobody thinks, ah yes, put it all away and save it for the rainy day."

I must be the exception then, although I am heading towards retirement age with no mortgage - I've looked at house price to incomes ratios and saved a third of my income for the last 7 years so that the kids can be helped when they want to buy.

"Life's a bitch, and then you die"

Anonymous said...

@ referred to - at least by hoi polloi

Dearime u may wish to check what hoi polloi means. Not what you think, I'm guessing.

Blue Eyes said...

Good post CU.

I worked at a place that abandoned annual salary increases while they thought they could get away with it due to the recession. Instead, sometimes they would give a bonus similar to what might have been an inflationary raise. The problem was that they then fell behind the market so as soon as the recovery started to kick in, loads of people left at once.

My problem with a bonus culture as caricatured by the banks is that it is so difficult to measure performance especially in complex organisations where roles are highly specialised. How can anyone possibly compare how well Tim is doing compared with Georgia, when they both do vital but quite different things?

I sometimes get envious of the money my friends who work in banks get. But actually I think I would hate working in a huge corporate.

Electro-Kevin said...

I've often taken pay cuts to do work I want to do.

James Higham said...

Why not just pay a set salary for the position and forget all this bonus stuff.

Nick Drew said...

Dysfunctional bonus schemes etc are the scourge of modern employment, now extending to every damn' "public service" as well

I start from where my working life began, the Army, where men will give everything they've got, metaphorically and literally, in order to be held in good esteem by their mates and the organisation as a whole

that model / ethos can be too extreme for ordinary employment but it's still worth bearing in mind, and good 'ordinary employers' can sometimes foster an atmosphere which captures some of the relevant tone

costs less £££ and can get excellent results - but needs good practices at all levels, & more continuity / stability than many (most?) orgs can muster these days

the next principle, entirely commercial, is surely the notion of commission - I always want any salesman working for me to be on an intelligently structured commission scheme, even at the same time as I want to be operating an 'esteem' ethos too

stress is on 'intelligently structured', there should be no 'guaranteed commission' etc: and weeding out dysfunctionality should be a constant preoccupation, fixed as soon as it is identified

I have found that when the whole company is sufficiently focussed on the order-book (like, you are real quick to reduce hours / let people go when there's nothing in the pipeline), everyone is cheering on the sales force, and is (almost) equally keen as the management that the salesmen should be on commission

the interesting challenge comes when 'sales' isn't conducted by the classic one-man travelling salesman, but by a team effort. Working out how you extend 'commission'-type incentives in that context is the bedrock of a good bonus scheme

dearieme said...

@ anon: I used it to mean "the masses", "the majority". I can't even remember what its official name was, that "merit payment".

My guess is that you are speaking out of your arse. I wonder whose guess is the more accurate.

Jan said...

The Evening Standard recently had a small piece saying that a survey had shown 80% of Londoners hated their jobs and the main reasons were bullying at work and poor management. Im sure this counts for more than pay for most people.

AndrewZ said...

I work for a company that runs employee reward and recognition programmes. Most if not all of the companies in our sector start from the assumption that cash rewards are not cost-effective because they have to be very large to outweigh all the other things that influence people. Therefore the main focus is on non-cash rewards, with participants being given a wide range to choose from so that they can get something they genuinely want and which feels like a well-deserved treat.

A great emphasis is also placed on recognition, because employees who feel that their efforts are being ignored will quickly become demoralised. But in order to be effective it has to include both peer recognition (your colleagues nominate you for something) and management recognition (your manager nominates you, and can give instant rewards for particularly good work). If there is only peer recognition it will seem as if the company doesn't really support the scheme. If there is only management recognition there is a risk that employees will feel that recognition doesn't really mean anything because it's handed down from on high instead of coming from the people who really know what you do every day. To be effective in the long-term it has to become a part of the organisation's culture, with new starters learning from day one that this is the way we do things round here.

However I suspect that the top investment bankers and stock-market traders who get million-pound bonuses are much more strongly motivated by cash rewards than most other people. They spend all day looking at profits and losses and must have a pretty good idea of exactly how much their work contributes to their employer's annual revenue. They will also have a good idea of how much their peers have contributed. So if their bonuses aren't proportionate to their contribution they will feel that the value of their work isn't being recognised and will probably have the data to prove it. So they want the cash reward because it's a form of recognition, thus demonstrating that the desire for recognition is more universal and fundamental than the desire for any particular form of reward.

Electro-Kevin said...

Andrew - They don't tend to like it when I get creative or experimental in my job.

Learning by one's mistakes is not the preferred method.

AndrewZ said...

“some people working A&E”

Some of the medical staff working A&E will just be passing through on their way to more agreeable specialisations. For them it’s just part of the training they have to go through to get to where they really want to be.

Some of the support staff will be working unsocial hours in an unpleasant environment because it’s the best-paid or most reliable employment opportunity that is currently available to them. They are making an economically rational decision.

Some of the people who work in A&E will be getting a considerable degree of satisfaction from it, even if it can’t quite be described as “enjoying going to work”. Some of them – hopefully not many – will be adrenalin junkies who only feel alive in a life or death situation. Some of them will love the challenge of working in an environment where literally anything could walk through the door, and your next case could be anything from a child with a splinter in her finger to multiple gunshot wounds, a motorway pile-up, AIDS, Ebola or some exotic infection that no British doctor has ever seen before. For some people there is nothing more exciting than a job where you genuinely cannot predict what is going to happen today.

But there are also some people for whom it is a vocation. Whatever reasons they may give, they do it because they have some internal compulsion that says this is what they must do. The diagnostic test for vocation is not to ask people “why do you do this?” because most people have a superficially plausible and socially acceptable reason for everything they do, whatever the real driving force may be. The real test is to ask “what else could you imagine yourself doing, apart from this?”. Most people will be able to imagine many alternatives to their current occupation that they would be equally happy with, and some that would be better. A person with a vocation will be genuinely stumped by the question, and while he or she may try to think of something it will never be put forward with any conviction. It will certainly not be described in the level of detail you would get from somebody who really knows what they would rather be doing, even if it’s not something they will realistically ever get a chance to do.

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