4 ms·

Here'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'

Here'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 ago
Where 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.
- ip26 4y ago
  That type of scheme does however help foster alignment, which can be more valuable than individual output. When the performance of the company is a bigger multiplier than your personal performance, you are financially more interested in the company doing well than your own stardom. It doesn’t really drive people to work 80 hour weeks, but that isn’t by itself valuable anyway.
aqme28 4y ago
Isn't this basically a reinvention of stock options?
- rhyperior 4y ago
  I'd more say it's a form of profit sharing, as are options and equity, but in a reliably valuable cash form as opposed to potentially valuable equity. If the bonus dollars are evenly distributed as proposed then it won't encourage competitive in-fighting that plagues some incentive systems.
  - mhuffman 4y ago
    >If the bonus dollars are evenly distributed as proposed then it won't encourage competitive in-fighting that plagues some incentive systems. I am not sure about that. I think the in-fighting would then come from people upset that other people that "did not contribute nearly as much as I did got the same bonus". People will always find a way to no be happy about something.
    - rhyperior 4y ago
      Some people will, sure, but some systems encourage it more than others IMO. If a company designs their bonus system to encourage individualism and thus explicit competition for scarce dollars, then it creates a game that people think they have to win at the expense of their peers. In these cases, they have a bonus pool (the "budget"), differentiated pay philosophy (pay for performance), and rarely have an objective criteria for assigning rewards (manager decides and makes a case). In that situation you get a lot more in-fighting because it's the way the game is designed. If you remove the competitive angle by assigning rewards equally (say, at a certain level of seniority you get a fixed bonus %; or, the company assigns a 20% bonus to everyone to share in the profits), then you are no longer giving people a game to win against their peers.
    - _carbyau_ 4y ago
      If a janitor gets the same "company bonus" as the rockstar dev - that is ok. The rockstar dev should have a salary/wage to match. And both are vital parts of a company. You can't have a bunch of co-located people without someone taking care of sanitation. Of course, you may choose a 100% "remote work" company to avoid that issue but in this instance each employee is their own janitor anyway. There is a flipside benefit too: the lesser paid people - other devs? You? Me? - will be happy to see the rockstar dev get such a wage/salary because they know they are worth it and it adds to their own company bonus. And when people are not such a rockstar after all, they will see scrutiny on all sides.
- mhuffman 4y ago
  I think they meant that the money would be paid out yearly from profits. Not trickled out to you in "virtual dollars" that may never be worth anything unless your company goes public or gets acquired.
  - jbay808 4y ago
    Private companies can still pay dividends if they want to!
- dilyevsky 4y ago
  Not contingent on your cap table structure
somesortofthing 4y ago
This sounds like it'd stop working really fast as the org grows. Low-performing/average employees will start to feel like their contribution to the pool is too small to justify additional effort while top performers will feel resentful that their work gets diluted among people who don't have as much impact.
- _carbyau_ 4y ago
  It's only a portion of the money given to an employee. A star performer should be getting "star performer" salary/wage.
vulcan01 4y ago
One issue with this system is that employees are incentivized to increase short-term profits at the expense of long-term growth. (Arguably this is already true of public companies' pressure from stockholders, but for private companies this may make a difference.)
badcppdev 4y ago
I agree. I wonder how many other people agree with the word "evenly"? I think it should be proportionate though. If you work for 1 year full-time then you get 1 portion. After all that person is giving approx. 1/45th of their working life to the company. ( Pro-rata reductions for people who work part-time ) It's a pity that the people who choose the remuneration would never go for it. They might not be able to afford their new BMW if they are sharing the bonus pie with the staff who actually help customers.
- _carbyau_ 4y ago
  I agree with the "evenly" bit because it is a bonus on company performance. This is simply saying that employees are invested in the wellbeing of the company, as much as "investors" are. As an individual, that person should get their wage/salary too, so experience/loyalty etc gets factored into that.
kovacs_ 4y ago
The privately owned org that I started with recently has new comers at a pretty constant 30% annual bonus. Tied to how well the company did but upon conversation with veteran staff, no issues with management paying out or percentage drops in the last 15 years. They aren't a perfect company by any means, but they seem to be decent from current observations.
JamesBarney 4y ago
I like a profit sharing bonus. I think it helps people feel like they are benefiting from the company growing and doing well. I think it increases retention because you are less likely to leave if a bonus is coming up. If a company has a really bad year it helps them weather the storm without having to fire people or cut salaries.

delecti 4y ago

Where 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.

ip26 4y ago
That type of scheme does however help foster alignment, which can be more valuable than individual output. When the performance of the company is a bigger multiplier than your personal performance, you are financially more interested in the company doing well than your own stardom. It doesn’t really drive people to work 80 hour weeks, but that isn’t by itself valuable anyway.

aqme28 4y ago

Isn't this basically a reinvention of stock options?

rhyperior 4y ago
I'd more say it's a form of profit sharing, as are options and equity, but in a reliably valuable cash form as opposed to potentially valuable equity. If the bonus dollars are evenly distributed as proposed then it won't encourage competitive in-fighting that plagues some incentive systems.
- mhuffman 4y ago
  >If the bonus dollars are evenly distributed as proposed then it won't encourage competitive in-fighting that plagues some incentive systems. I am not sure about that. I think the in-fighting would then come from people upset that other people that "did not contribute nearly as much as I did got the same bonus". People will always find a way to no be happy about something.
  - rhyperior 4y ago
    Some people will, sure, but some systems encourage it more than others IMO. If a company designs their bonus system to encourage individualism and thus explicit competition for scarce dollars, then it creates a game that people think they have to win at the expense of their peers. In these cases, they have a bonus pool (the "budget"), differentiated pay philosophy (pay for performance), and rarely have an objective criteria for assigning rewards (manager decides and makes a case). In that situation you get a lot more in-fighting because it's the way the game is designed. If you remove the competitive angle by assigning rewards equally (say, at a certain level of seniority you get a fixed bonus %; or, the company assigns a 20% bonus to everyone to share in the profits), then you are no longer giving people a game to win against their peers.
  - _carbyau_ 4y ago
    If a janitor gets the same "company bonus" as the rockstar dev - that is ok. The rockstar dev should have a salary/wage to match. And both are vital parts of a company. You can't have a bunch of co-located people without someone taking care of sanitation. Of course, you may choose a 100% "remote work" company to avoid that issue but in this instance each employee is their own janitor anyway. There is a flipside benefit too: the lesser paid people - other devs? You? Me? - will be happy to see the rockstar dev get such a wage/salary because they know they are worth it and it adds to their own company bonus. And when people are not such a rockstar after all, they will see scrutiny on all sides.
mhuffman 4y ago
I think they meant that the money would be paid out yearly from profits. Not trickled out to you in "virtual dollars" that may never be worth anything unless your company goes public or gets acquired.
- jbay808 4y ago
  Private companies can still pay dividends if they want to!
dilyevsky 4y ago
Not contingent on your cap table structure

somesortofthing 4y ago

This sounds like it'd stop working really fast as the org grows. Low-performing/average employees will start to feel like their contribution to the pool is too small to justify additional effort while top performers will feel resentful that their work gets diluted among people who don't have as much impact.

_carbyau_ 4y ago
It's only a portion of the money given to an employee. A star performer should be getting "star performer" salary/wage.

vulcan01 4y ago

One issue with this system is that employees are incentivized to increase short-term profits at the expense of long-term growth. (Arguably this is already true of public companies' pressure from stockholders, but for private companies this may make a difference.)

badcppdev 4y ago

I agree. I wonder how many other people agree with the word "evenly"? I think it should be proportionate though. If you work for 1 year full-time then you get 1 portion. After all that person is giving approx. 1/45th of their working life to the company. ( Pro-rata reductions for people who work part-time ) It's a pity that the people who choose the remuneration would never go for it. They might not be able to afford their new BMW if they are sharing the bonus pie with the staff who actually help customers.

_carbyau_ 4y ago
I agree with the "evenly" bit because it is a bonus on company performance. This is simply saying that employees are invested in the wellbeing of the company, as much as "investors" are. As an individual, that person should get their wage/salary too, so experience/loyalty etc gets factored into that.

kovacs_ 4y ago

The privately owned org that I started with recently has new comers at a pretty constant 30% annual bonus. Tied to how well the company did but upon conversation with veteran staff, no issues with management paying out or percentage drops in the last 15 years. They aren't a perfect company by any means, but they seem to be decent from current observations.

JamesBarney 4y ago

I like a profit sharing bonus. I think it helps people feel like they are benefiting from the company growing and doing well. I think it increases retention because you are less likely to leave if a bonus is coming up. If a company has a really bad year it helps them weather the storm without having to fire people or cut salaries.