Posted by: mikeduckett | February 23, 2012

Big Bonus = Poor Performance. Whose Fault Is That?

Forgive me for feeling the warm glow of vindication right now!

In another era I was in a senior sales position, responsible for the performance – or should I say results – of a sales force of some hundreds of people of varying levels of skill.  I’m hedging a bit here because although in the corporate world I was held responsible for their performance, I was always acutely aware that I could only really be responsible for my own performance as their leader/manager, but that I would definitely be accountable for their results!

I could influence their behaviour by offering the right training and the right kind of environment (leadership culture etc) for them to perform at their best but when it came to the crunch, as they sat in front of customers it was down to them and only they were responsible for what they did next.

Two current events came together recently to remind me of these times:

1. Yet another football team manager was sacked because of his team’s poor performance. The only reason I know this (people who know me will tell you it’s hard to underestimate my interest in football) is because something very unusual occurred: the players took responsiblity for their own performance – even they realised the manager can’t be responsible for what they do on the pitch! (See Daily Mail, “Blame us, not Mick!”)

2. Big city bonuses are still in the news and there was a lot of discussion around whether they are rewarding failure or success and whether they are appropriate incentives to improve performance. (See e.g. FT, “City’s bonus culture comes under fire”)

So how do these events come together to remind me of past times? Well, because one of the accepted practices in sales management is to run incentive or bonus schemes to ‘motivate’ the sales people. In other words, after recruiting the right people and offering the right training, a key area of my performance as sales manager was to also offer ever more elaborate and expensive bonus schemes.

Now the first point is that although I took 100% responsibility for my actions as a leader of sales people (to train them, inspire them, fight their corporate corner, etc.) that’s not the same as being responsible for how they performed ‘on the pitch’. Like Mr McCarthy, I knew that in reality neither I nor the team could control the result (goals or sales) and as any good performance coach will tell you “control the controllables” and “separate results from performance”. This may be nerve-racking for the board of management who need to feel in control of results, but in fact it’s far more effective to focus your attention on what matters – what you’re doing right now that could lead to or hinder a result. Rest assured this attitude has helped British cycling teams under Performance Director David Brailsford, to achieve world-class performance. He’s said before that no coach or manager ever won or lost a medal, only the rider does that by focusing on riding!

So, as I thought back to what my responsibilities were as sales manager and checked that I had stayed focused on my performance, I was reminded of those incentive schemes and my nagging doubts about them at the time.

Throughout my time in sales management I kept up with research that had first intrigued me as a psychology undergrad, relating to the effects of rewards and punishments on performance. I had always known that the effects were not as simple to predict as seemed to be implied by the advocates of ‘offer them a trip to the Bahamas and they’ll work their socks off’ incentive packages. I was always looking for ways to increase sales people’s focus on their skills right there in front of customers; skills they could be proud of and enjoy exercising and I had a more than a niggling doubt that my incentive trip to the Bahamas was going to distract them!

I knew the evidence was there that offering rewards could actually reduce performance by focusing people away from the intrinsic rewards of exercising a skill and onto extrinsic events & results. In fact I went as far as buying my MD a copy of Kohn’s provocative book Punished by Reward , but I decided it would be a braver man than me that would suggest we overturn years of incentives, which predictably had now become part of the expected package. So I never pushed it with him and I doubt he ever read it. What I did was propose that we launch an ‘Action Aid’ incentive scheme. Action Aid is the charity that allows donors to sponsor a child, thus creating a sense of a direct link between the donor and the receiver. My idea was that we offer the usual bonus but that when awarded, the money actually went to Action Aid and at the awards ceremony the sales representatives would see video footage of the children who directly benefitted.

When I presented the idea to the board they were almost speechless and thought I must be losing it or at least ‘on something’ (bit rich given it was a pharmaceutical company!).

That brings me to my final point of vindication: I’ve been reading some contemporary research on the effects of bonuses on performance and other measures such as job satisfaction. Groups from Harvard Business School and University of British Columbia (Norton et al) studied a pharmaceutical sales team, bank workers and a sports team, offering incentives to spend on themselves and on others. They discovered that “…when organizations give employees the opportunity to spend money on others – whether their co-workers or those in need – both the employees and the company benefit, with increased happiness and job satisfaction, and even improved team performance”.

A finding of particular interest to me was that for return on investment (ROI) in the schemes. So, using the hardest-nosed measure of all, what was the outcome? I quote: “On sales teams, for every 10€ given to a team member to spend on herself, the firm gets just 3€ back – a net loss – whereas for every 10€ given to a team member to spend on the team, the firm gets back a remarkable 52€.

Similarly for sports teams, every $10 spent on oneself led to a 2% decrease in winning percentage, whereas $10 spent pro-socially led to an 11% increase in winning percentage.”

Vindication!

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Responses

  1. Brilliant write Mike and sooo true! I’ve been watching (and in the past wearing) corporates fluffing around with incentive schemes and bully boy tactics for years. Hope some of them read this!!

    • Thanks Yvonnne – you’ll be aware of the effects of bonuses etc from your days over here in sales. The old carrot and stick or ‘jump and I’ll give the dog a bone’ stuff! It’s a brave person that tries to scrap all that though…..

  2. Good article Mike. Rewards has a limitation as you have suggested. Most people want to make a contribution – add value to others – and being valued (reward – not necessarily monetary) in return. It is ironic this principle seems to have bypassed those in leadership positions in finance and banking industry!

    • Thanks Bhupe – it is of course all about intrinsic v extrinsic motivation – dangling extrinsic rewards can distract people from the intrinsic satisfaction that comes from exercising skills etc.

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