One More Reason Why (Some) Bonuses Are Stupid

1 04 2010

As many of you know, until early February I worked in finance, an industry that embraces annual bonuses as performance incentives. Let’s ignore – for now – whether or not these incentives work as intended, and instead focus on a less discussed and perhaps less frequently relevant aspect of incentive design.

I knew toward the end of spring 2009 that I would be giving my notice the day I received my bonus in January 2010. That’s over six months prior. I had a long (and well-hidden) countdown on my wall. In spring 2009 I was working on a number of high-profile long-term projects and was the only person at my firm with much experience dealing with the data behind these projects. Had I not been expecting a bonus in 2010, I would have either (a) quit earlier, and/or (b) given substantial notice with more than sufficient time to hire and train replacement and transition my responsibilities.

Instead, my anticipation of a bonus led me to not mention anything about my intention to resign until the bonus was in my bank account, giving the company two weeks to rush and figure out how to replace me.

I didn’t say a thing about my plans before receiving the bonus because it would likely have impacted the amount that hit my bank account. After all, while a bonus is supposed to be based on past performance, it also serves as a strong incentive for employees to stay onboard. From the employer’s perspective, why give an employee a large bonus if you know they are leaving the next day?

I can think of some partial solutions, but let’s hear from you. What solutions would you propose to the problem I outline above?

Cheers.

posted by jayhorowitz

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2 responses

1 04 2010
Pete

More immediate, intermediate bonuses, say for closing projects with valid control plans. You could also offer more valid control plans by continuing to pay the employee an additional bonus each quarter s/he stays on and the savings/growth remains, a pull method to verify control.

I think we are on the brink of a big change in the professional workforce. From an intensive corporate interviewing process to more contractual agreements. I don’t know if one is better than the other. The former has more of a humanitarian feel to it, while the other has economical advantages.

1 04 2010
jayhorowitz

I agree wholeheartedly with your ideas, yet I’m skeptical that we’re on the brink of a big change in the professional workforce. For example, while it worked out better for me this year, my firm paid out bonuses almost completely in cash – with less deferred compensation than last year! What a 360 from where everyone thought the industry was heading!

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