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For Best Results, Forget the Bonus
- Ava4312 4y ago
- deleted 4y ago[deleted]
- cyb_ 4y ago[1993]
- Negitivefrags 4y agoI think the same is true of equity compensation schemes. I understand the theory of aligning incentives, but in practice what I see is a bunch of perverse results. Rest-and-vest as well as all sorts of non-useful stress in times like these.
- bombcar 4y agoEquity compensation works for the CEO, where he has a notable and direct influence on the share price (whether that is a GOOD thing is another question). For normal employees, it's just a form of pay with extra hoops. I suspect much of these started with ways to get "around" cash flow requirements, etc, but now the accounting rules have caught up and it's not really worth it anymore, for anyone.
- ottoboney 4y agoI’m not sure I agree with you that equity compensation is only beneficial for C suite level people. I think a lot of people in the Bay Area who work at large and small companies have benefited from rising stock prices and large amounts of their pay being equity. Look at the price of Apple stock over the last few years. Even a normal IC at Apple has made significantly more money due to their equity compensation being granted over 4 years. There are also many people who have been normal IC level employees at companies like Snowflake who gained tremendous wealth by them going public and being paid in equity. Sure there are some losers, but I think over a large sample size employees generally win by being paid in equity vs the cash price at the time equivalent.
- bombcar 4y agoYou can approximate that with being paid more and buying company stock - but most would recommend NOT doing that. Pre-IPO stock options and grants are a separate discussion; I was thinking mainly of the equity portion of Google, Facebook, et al. It ALSO allows them to "pay" people the same even though total comp may be very different, (this looks good on reports about pay equality) AND it allows them to institute pay cuts without ever having official pay cuts.
- sokoloff 4y agoHaving a portion of pay that automatically and transparently scales with company performance seems valuable and sensible. When the company outperforms expectations, the gains are shared. When it underperforms, the pain is shared.
- kelnos 4y agoThe problem is that each individual employee generally has vanishingly small individual impact on the company's performance. That can really hurt morale when the stock price goes down, often even when the company is doing just fine, or even well.
- sokoloff 4y agoIME, it doesn’t hurt morale worse than the company instituting broad-based salary cuts would, which is an alternative structure to accomplish a similar shared-success model.
- lazyasciiart 4y agoMy employer is making record profits every quarter and the share price is going down month after month. What shared success?
- sokoloff 4y ago
- JonChesterfield 4y agoBonus schemes can be extremely effective for retention. Partition comp so that enough turns up monthly that people don't struggle and add a significant bonus every N months and there is never a 'good' time for your employees to leave. Best I know of was every three months as that's roughly the latency to change jobs - after a bad day in the office, the next reward is still close enough to distract from the alternatives.
- bombcar 4y agoThis is what most bonuses are, salary that can be "clawed back" if you will.
- nopenopenopeno 4y agoBonuses that can be clawed back will never keep me around. I do generally appreciate my bosses, but I know better than to assume my hard work will be recognized. I work hard because I like being valuable. I stick around for a reliable income. Also, I generally have low opinions of coworkers who do anything else. Those desperate for recognition usually sacrifice something else in the process.
- zeroonetwothree 4y agoSo now you've created a situation in which your employees resent having to stay longer than they want. Is that really ideal?
- nlitened 4y ago> Is that really ideal? I don't think "ideal" is possible, but if you have to choose whether valuable employees in average stay longer than they'd want or leave earlier than they'd want—longer is better for the business.
- earnesti 4y agoOften it is not really well known if how valuable the employees are,
- proaralyst 4y agoThe main site didn't load for me, but this archive did: https://archive.ph/tCM6b https://archive.ph/tCM6b
- nine_k 4y ago> Another explanation is that the reward makes the work seem distasteful. “If they have to bribe me to do it,” a person might figure, “it must be something I don’t want to do.” Logically this also applies to any form of compensation, say, your wages. (Hence the derogatory term "wages slave" from these who can afford not to depend on wages.) The old recipe for that is to "pay your engineers so much money they won't know what to do with it" (can't find that quote from 1980s), but the realty market has adapted and likely made this a largely inefficient strategy.
- zeroonetwothree 4y agoI think fixed wages have less of an effect on this because you get used to them so you don't really think about them. Especially when you aren't working hourly, the relationship between the work you do and your pay is often very tenuous. So it can feel like you are doing the work for its own sake.
- swagasaurus-rex 4y agoI commit a large part of my day to work. Whatever I do then I don't complain about I just do. The rest of the day is mine. I do what I want and don't feel regret about whatever I decide to do.
- taneq 4y agoFor me, getting paid per hour is anathema to my enjoyment of the work. It’s a perverse incentive if I get things done faster than expected and a source of worry if things take longer. I’d much rather get paid per project, or get paid salary with TOIL for overtime worked.
- amelius 4y agoSeems like this challenges the underpinnings of the free market. So according to the article we can start taxing everyone 100% once their income is above a certain level. And the output of the economy will be better.
- senko 4y agoCongrats, you've just invented communism: https://en.m.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_needs https://en.m.wikipedia.org/wiki/From_each_according_to_his_a...
- lolinder 4y ago"The free market" is not synonymous with "money as the primary motivator". All that a free market means is that we let natural interactions between people and groups of people drive the economy. It doesn't rely on any particular framework for how people choose what they want or how behavior is actually motivated. As an example: I choose to work at a job that pays less than I could get elsewhere because there are intangible benefits that matter more to me. I'm able to do that because the market is free. Within the company, I fight to keep those intangible benefits prioritized because I know that they are a major selling point that will get us engineers when we can't afford to pay SV wages. That's the free market at work, but money and incentive schemes don't factor into it at all.
- amelius 4y ago> "The free market" is not synonymous with "money as the primary motivator" Of course it is not black/white like that. But people keep telling me that the free market is so much better than communism because there is an incentive to work (money). However, it seems, the truth is somewhere in the middle, and it seems closer to communism after a certain level of income has been attained. That is, according to the theory in this article.
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- minitoar 4y agoI once received an employment offer from a FAANG that was weighted heavily on the annual bonus. Like 1/3 of the total comp was 1st and 2nd year hiring bonus. I don’t get how that’s appealing since it seems like a guaranteed pay cut once those are done.
- thanksgiving 4y ago> I don’t get how that’s appealing since it seems like a guaranteed pay cut once those are done. As an outsider, one guess I can make is probably they expect you to work hard to secure promotions within those three years?
- lazyasciiart 4y agoNo, they expect you to either be too lazy to leave or to leave.
- minitoar 4y agoI was thinking after those 2 years were up I could go interview again and get a competing offer and then ask for a retention bonus, but I don't know if they'd do that and it seems like a lot of work.
- minitoar 4y agoI don’t think it’s common to get a 30% raise in nominal comp in 2 years from these companies.
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- zeroonetwothree 4y agoBonuses don't work well because they are too temporally distant from the work you do. For example, typically you get an annual bonus, but that might be for work you did a whole year before (and even more, with the time it takes to decide on bonuses, pay them out, etc.). There's just no way our brains properly can handle reward that is so distant in time. As a result, bonuses end up feeling either "expected" (if you always get roughly the same amount) or capricious/political (if there is a lot of variance). Add to this that accurately rating employee performance is very difficult, and you get a huge disconnect between effort and reward. What this means it that employees will seek to game the system by identifying activities that give them a high gain in "review score" for the least effort. This leads to rent seeking, politics, stealing credit, and other such activities. Not everyone plays this game, but those that don't are at a huge disadvantage. I've seen people get the same performance rating where one of them did literally 5x the work of the other, just because of other factors. Bonuses can only work when they are given soon after the work you do and are (at least somewhat) objectively-measurable. For example, sales commissions work well. I think signing bonuses are also pretty effective at luring a job candidate when they have multiple offers, because they get the money right away. But that's sort of a different scenario.
- swagasaurus-rex 4y agoHere's an idea to prevent such perverse incentives: All employees are part of a pool that evenly distributes a portion of the company's profits. The employee's incentives become tied to what the company wants most: income. This might create other incentives like trying to hire fewer people so as to not dilute the pool, but I can't think of a better heuristic than to tie the company's success into each of the worker's success.
- delecti 4y agoWhere I work, annual bonuses work partially like that, and partially based on personal performance. It's a target percent of your salary (around 10% depending on level), with multipliers for personal and company performance (ranging from 0-200%). This year my bonus was roughly 1/3 my base salary because the company performed well, and I received a good review. It certainly felt awesome, but at the same time, in a company of 100k+ employees, am I really personally responsible for how the company performs in any meaningful way? What I'm saying is, I think the GP comment is right, that a bonus scheme is unlikely to materially affect performance.
- personjerry 4y agoFirst, this is from 1993. Second, they make a lot of claims that at least go against my understanding of psychology - and with no citations, only mentioning their own book as a "source" at the bottom.
- Alex3917 4y ago> with no citations, only mentioning their own book as a "source" at the bottom. The book has hundreds of academic citations. IMHO it's the single most important book for any entrepreneur to read.
- Archelaos 4y agoOne problem with boni is that they become mali if one does not get what one expects. This is especially problematic when it affects the better part of a company's workforce. Then the company is demotivating their best employees. A related hypothesis: There is an asymmetry because overvaluations do not have an equivalent motivating effect as undervaluations have a demotivating effect. Boni without an objective measure are therefore on average rather demotivating.
- mlhpdx 4y agoBonuses (and the like) seem very different than piece work, which the author conflates. I worked for a few years doing piecework and the direct correlation between my productivity and my income was perfect as far as I’m concerned. I became better in every way - faster, better quality, more sensitive to the owner outcomes (profit). In my subsequent 25+ years working in software (QA, Developer, Architect, Executive) the closest thing I’ve found is ownership participation (Options, ESSOP, etc.) which is too often a bad deal for employees because of various investor hijinks but generally helpful in creating alignment in both growth and efficiency. I’d prefer a bonus calculated based on the sum of growth and margin since it likewise creates alignment on the things that matter (in capitalism) but it’s very rare to find others that agree and support such a program at the investor/owner level.
- hizxy 4y agoBonuses tied to ARR when most people do not directly impact revenue.
- 0x445442 4y agoWithin the context of software development, for best results get rid of the managerial barrier between engineers and the business; the original intent of Agile.
- kcplate 4y agoExcept “agile” has evolved to adding 3-4 layers between the engineers and the business because the engineers tend to build products that are great for them, but lousy for the business. Whatever the intent was, the effect sucks. I am sure I will get downvoted here and don’t care. Three decades of experience watching unfettered software engineers get it completely wrong overrides your derision.
- 0x445442 4y agoHaven’t you just contradicted yourself by acknowledging the 3-4 layers of added management but then laying blame elsewhere?
- kcplate 4y agoNot at all, the reason businesses feel compelled to add that buffer between software engineers and the business is because software engineers tend to make lousy decisions in terms of understanding the actual product requirements…at least in my experience.
- 0x445442 4y agoAhh, your assertion is that things have improved with the extra layers. I’ve been developing software professionally for 27 years. I respectfully disagree with your assertion. I’ve seen a steady decline in the quality and efficiency of software development since these extra layers have been introduced.
- kcplate 4y agoI’m guess what I am saying is that businesses feel they need the extra layers because software engineers today are generally terrible at translating the businesses requirements into a viable product. But, I think it speaks to the general quality of the software engineers produced today more than in the past. 20+ years ago, I think software engineers were more talented and perhaps more capable of directly interfacing to the business without the middle men. So it’s kind of what came first, the chicken or the egg. In the 80s and 90s, I recall 9/10 pro devs were exceptional. Today, by my generous estimate, I’d say 2/10 would measure up to those folks I worked with back then. Again, thats just my experience, but I am an old man nearing the end of my career who yells at those damn kids who keep playing on my lawn nowadays, so take it with a grain of salt.
- civilized 4y agoAll the discussion about bonuses being counterproductive rewards for performance proceeds from the assumption that bonuses are intended as a reward for performance. Actually, bonuses are mostly a way for a company to be flexible in the amount paid to employees. If the company has a bad year, cutting salary will have people looking for the exits... but they might accept a smaller than usual bonus.
- Ava4312 4y ago