You Must Be Kidding

We all know about the infamous AIG bonus situation. We’ve following the developments of the Nortel bonus drama (today apparently the courts approved bonus payments to 8 executives of the company.

Everybody is talking about those. But what about the millions of bonuses that are paid every day all over the industry?

Bonuses are supposed to be good, they help the companies get and keep the best talent by compensating them richly for that talent and achievements.

But as we are beginning to see, bonuses have a dark side as well.

Bonuses not only can easily lead to reckless and dangerous behavior but fosters it by making incentives so high and attractive that one is ready to do anything to get it. And let’s not forget that very often this recklessness is not only found in those getting the bonus but also in those who compete to get that bonus. Those who don’t get the bonus don’t necessarily act better than those who do.

And what about the fairness of that practice? Only a few get a huge retribution completely out of proportion with the rest of the people working with them.

When we consider bonuses we also come to reflect on goal setting since bonuses are most often, at least officially, given because the executive receiving the money has reached or surpassed a goal that was set before hand.

Goal seeting can be disastrous was obvious during the Chinese Cultural Revolution. Because everybody had to be a good citizen and fully participate in the growth of the country, the central government set production goals for every farming unit and they had to meet every year a certain quota with various benefits for those who did best.

The result was that most farming units reported vastly inflated production numbers which the government used for food distribution planning. The problem of course was that when time came to give out the rice and wheat as reported by the farming units, the authorities realized that the food was just not there. A widespread famine resulted killing millions of people.

As Brian Frank pointed out in his post Goals Gone Wild goals lead to sacrifice quality for the sake of quantity, which is not necessarily better for the company:

Goals that are too specific often lead employees to develop such a narrow focus that they fail to recognize obvious problems unrelated to the target. According to the authors, highly specific goals may cause workers to sacrifice safety for speed — as in the case of the Ford Pinto — or pursue misguided end results, as was the case at Enron. A typical problem is the sacrifice of quality in the interest of quantity, they note, citing the example of universities that require tenured professors to publish a certain number of research papers in particular journals, but without careful scrutiny of the quality of the work.

As with many aspects of the current financial crisis, bonuses are just one manifestation of the dangers of a vast inequality in the distribution of wealth.

Sooner or later we’re going to have to find better ways of doing things.

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Tags: aig, bonus, economy, goals, nortel, society

This entry was posted by Francois on Tuesday, March 24th, 2009 at 5:05 pm and is filed under Politics, current affairs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.