3 ms·

Sounds like lots of time wasted for coming up with such a complicated scheme, communicating it and everybody thinking through how to maximize their own benefit

Sounds like lots of time wasted for coming up with such a complicated scheme, communicating it and everybody thinking through how to maximize their own benefit from it. Sounds like the articles point. But on steroids. All it does is keep people from doing actual work and be happy doing so. This is just infighting waiting to happen.

hutzlibu 6y ago
Originally it might boost peoples morale, as they think there is a bonus to be gained. But after people figure it out, there morale drop will probably be a net negative. It definitely would be a net negative for me, as I would feel screwed.
Cogito 6y ago
It's fairly standard, in my experience, and makes sense if you come form the position of the company. In the budget a certain amount of money is allocated towards the incentive scheme. If the company does not perform as well as planned this pool is reduced appropriately (you can't pay bonuses with money that doesn't exist). If you take the original pool of money you can express it as a percentage of the entire payroll, and that percentage is what, on average, everyone's bonus will be (for example 6%). Alternatively, that percentage is used to calculate what the pool will be in the first place (before scaling for company performance). You then have the individual perfomance scaling, which is designed to reward people excelling at their job. The individual has a starting percentage-of-salary bonus, and that percentage is moderated up or down depending on how they performed relative to their peers. Relative to their peers is super important here, because the total bonus pool was worked out based on the starting percentages (and then moderated by company performance) so the final bonuses are really just an allocation of that pool between the employees. In some companies managers will literally take their employees' performance reveiws into a big round-table meeting where they argue why specific team members should receive a 4 or 5 rating (the highest), as there are a limited number of 4s and 5s available in the incentive scheme. The final calculation is fairly straightforward then. From the company's perspective, an individual's bonus is = (total payroll) * (incentive scheme budget allocation percentage) * (company performance factor) * ([potentially] business unit or department performance factor) * (individual performance factor) For the individual it's built up in reverse, and it's the accountants jobs to make sure the numbers match in the end! bonus = (employee salary) * (base bonus percentage +- individual performance modifier) * (company performance factor) * ([potentially] business unit or department performance factor)
- castlecrasher2 6y ago
  To be frank, it doesn't matter how much sense it makes in theory when in practice it has obvious downsides.
  - Cogito 6y ago
    I think it makes sense in practice too, if you accept some incentive scheme. Perhaps no incentive is the best incentive, but I don't know the data on that. In my experience there was never a huge disconnect between an individual's performance and their expectation of their bonus. Your starting point was based on your position - say 5% for junior positions and 10% for senior positions. The thing you had control over was if that starting position went up or down. There are 5 performance review levels, and each has a matching percentage associated with it. A '3' is "doing your job satisfactorily" and gives your base of say 10%. A '4' might be 15%, '5' 20%, '2' 5%, and '1' 0% (I don't remember if they actually went to 0% or not). The last important factor is the companies overall success, but that is largely out of your hands so it 'is what it is'. The bigggest downside with this system is that it's not capable of handling everyone getting a '5'. If you really had a team of superstars it would be a hard and long battle to get them all recognised (though I did see that happen on occasion).
    - tharkun__ 6y ago
      I always find it fascinating when employees try to justify these schemes. Both the bonuses and the rating systems. Yes, all of your team can be 5s. They can all exceed expectations. And that's what each individually thinks too. He's gonna be so much better than everyone's else. Most people think that. Of course the system is rigged. It's not really about exceeding your expectations. Even when they try to make it seem like it's possible. It's about making a nice bell curve of the ratings and assigning bonuses and salary increases based on it. If you're at the wrong company they also fire the bottom 10% or something like that. Why they do this I will never understand. It kills intrinsic motivation (even for the 'exceeding' guys as seen in previous comments). Google the Oprah experiment. It kills morale if the company doesn't make it one time. It kills morale for the guys that don't get the bonus they wanted or makes them game the system. Which kills morale for the guys that are actually good at their job but don't care about gaming the system. So much to loose.

hutzlibu 6y ago

Originally it might boost peoples morale, as they think there is a bonus to be gained. But after people figure it out, there morale drop will probably be a net negative. It definitely would be a net negative for me, as I would feel screwed.

Cogito 6y ago

It's fairly standard, in my experience, and makes sense if you come form the position of the company. In the budget a certain amount of money is allocated towards the incentive scheme. If the company does not perform as well as planned this pool is reduced appropriately (you can't pay bonuses with money that doesn't exist). If you take the original pool of money you can express it as a percentage of the entire payroll, and that percentage is what, on average, everyone's bonus will be (for example 6%). Alternatively, that percentage is used to calculate what the pool will be in the first place (before scaling for company performance). You then have the individual perfomance scaling, which is designed to reward people excelling at their job. The individual has a starting percentage-of-salary bonus, and that percentage is moderated up or down depending on how they performed relative to their peers. Relative to their peers is super important here, because the total bonus pool was worked out based on the starting percentages (and then moderated by company performance) so the final bonuses are really just an allocation of that pool between the employees. In some companies managers will literally take their employees' performance reveiws into a big round-table meeting where they argue why specific team members should receive a 4 or 5 rating (the highest), as there are a limited number of 4s and 5s available in the incentive scheme. The final calculation is fairly straightforward then. From the company's perspective, an individual's bonus is = (total payroll) * (incentive scheme budget allocation percentage) * (company performance factor) * ([potentially] business unit or department performance factor) * (individual performance factor) For the individual it's built up in reverse, and it's the accountants jobs to make sure the numbers match in the end! bonus = (employee salary) * (base bonus percentage +- individual performance modifier) * (company performance factor) * ([potentially] business unit or department performance factor)

castlecrasher2 6y ago
To be frank, it doesn't matter how much sense it makes in theory when in practice it has obvious downsides.
- Cogito 6y ago
  I think it makes sense in practice too, if you accept some incentive scheme. Perhaps no incentive is the best incentive, but I don't know the data on that. In my experience there was never a huge disconnect between an individual's performance and their expectation of their bonus. Your starting point was based on your position - say 5% for junior positions and 10% for senior positions. The thing you had control over was if that starting position went up or down. There are 5 performance review levels, and each has a matching percentage associated with it. A '3' is "doing your job satisfactorily" and gives your base of say 10%. A '4' might be 15%, '5' 20%, '2' 5%, and '1' 0% (I don't remember if they actually went to 0% or not). The last important factor is the companies overall success, but that is largely out of your hands so it 'is what it is'. The bigggest downside with this system is that it's not capable of handling everyone getting a '5'. If you really had a team of superstars it would be a hard and long battle to get them all recognised (though I did see that happen on occasion).
  - tharkun__ 6y ago
    I always find it fascinating when employees try to justify these schemes. Both the bonuses and the rating systems. Yes, all of your team can be 5s. They can all exceed expectations. And that's what each individually thinks too. He's gonna be so much better than everyone's else. Most people think that. Of course the system is rigged. It's not really about exceeding your expectations. Even when they try to make it seem like it's possible. It's about making a nice bell curve of the ratings and assigning bonuses and salary increases based on it. If you're at the wrong company they also fire the bottom 10% or something like that. Why they do this I will never understand. It kills intrinsic motivation (even for the 'exceeding' guys as seen in previous comments). Google the Oprah experiment. It kills morale if the company doesn't make it one time. It kills morale for the guys that don't get the bonus they wanted or makes them game the system. Which kills morale for the guys that are actually good at their job but don't care about gaming the system. So much to loose.