Rethinking the bonus

I read a great article on how to reshape the traditional bonus. I can’t find the original article, but the study it was based off of was summarized in the Wall Street Journal.

The article went something like this: a bonus is designed to incentive improved performance, and is paid only after certain milestones are achieved. In theory, it works perfectly: the company gets the results it wants, and the employee is paid for going above and beyond.

This structure hasn’t changed significantly for many, many years.

But year end bonus time comes, and companies are often missing their goals despite the promise of a bonus. Is it that the reward was disproportionate to the goal? The goal un-achievable?

Psychologists have long known that the fear of loss was greater than the joy of reward. How then do you apply that to a bonus?

The study gave a group of teachers a bonus at the beginning of the year and told them they had to return it if scores didn’t improve. The other group was rewarded using the traditional bonus structure. The teachers who got the bonus, spent it, and didn’t want to return it improved scores dramatically more than those with the traditional structure.

In my view: brilliant.