United’s ‘Bonus Lottery’ Was a Disaster, But We Should Still Rethink Bonus Structures. Here’s Why
Having a clear vision, setting high expectations and demanding accountability creates a corporate environment with sustained intrinsic motivation.
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Let's not mince words: United's recent effort to change its bonus plan was an unmitigated disaster. The company announced a few weeks ago that it was replacing quarterly bonuses with a lottery bonus system that made it possible for some workers to earn as much as $100,000 in prizes--while a lot of others would lose out, just as in any other lottery.
The announcement drew the ire of just about everyone, and United quickly changed course. In the process, the company revealed a full playbook of business and leadership mistakes, with poor communication at the top of the list. Impacted employees found out about the changes at the same time as the press. Apparently, no one had bothered to get any employee feedback in advance.
The reaction to the new bonus system was both swift and incredibly negative. That was partly because people were losing something they already had, which is always difficult. But it was also a case of failure to lead by example: The policy only applied to the rank and file; no executive had to throw the dice to see if he could earn an extra six or seven figures.
Reward Excellence, Not Expectation
The funny thing is that, despite United's train wreck of an example, there actually are legitimate reasons to abandon old-fashioned bonus systems--including the fact that they tend to become entitlements. If an employee gets her bonus, it's no big deal, it's what she expected. However, someone who doesn't get a bonus is disappointed. There's not much upside from the company's perspective.
Bonuses can also encourage disengaged employees to stay longer than they would otherwise, just punching the clock and biding their time. They quit right after bonus payouts--which means they decided to leave a long time ago. Outside of production-based jobs in sales and banking, where bonuses have long been the dominant form of compensation, company leaders are looking for new ways to incentivize performance.
Today's emerging companies are trying to create more lasting motivation and purpose for their employees beyond the end of the month, quarter or year. United doesn't appear to be in this camp: Given the company's history, it's more likely management was just being cheap. Even so, there are legitimate reasons to re-examine your company's incentive system and consider if and how you want to incorporate bonuses.
Find Motivation That's Beyond Monetary
Our company, Acceleration Partners (AP), eliminated our traditional bonus program last year. In its place, we instituted a spot bonus program designed to reward those who go above and beyond expectations in some particular way. The reward is not expected, so it really is a bonus. We also require managers to spend their spot bonus allocation, ensuring the company regularly rewards stellar performance.
At the same time, we have invested time and money in helping employees achieve their life goals, a program that supports our company values and--I think--sends the message that we understand that there is more to life than work. In fact, outside achievements can support professional success, and vice versa.
Many people believe that the best motivation comes from external rewards or fear of punishment--the carrot-and-stick approach: Earn a bonus or lose your job. I think that's a mistake, and it's one that Daniel Pink identified in his bestselling book Drive: The Surprising Truth About What Motivates Us. This book and its concepts helped us develop our award-winning culture at AP (ranked No. 4 by Glassdoor as a best place to work).
Pink found that the secret to high performance and satisfaction--at work, at school and at home--is the deeply human need to direct our own lives, to learn, to create new things, and to do better by ourselves and our world. What people really want in a work environment, Pink says, are autonomy, mastery and purpose-- the three elements of true intrinsic motivation.
As Pink explains, money is a motivator to a point, but once basic needs are met, other factors are more important to driving high performance and employee retention. I have found that having a clear vision, creating high expectations and demanding accountability--all while coaching and supporting people to meet high standards--has created an environment with sustained intrinsic motivation. In contrast, the employee who is only motivated by salary and bonuses is likely not to be a team player and the first to leave for a better offer.
Don't Confuse the Message with the Messenger
So, don't throw out the baby with the bathwater. While United's bonus changes failed--both from lack of leadership and from poor execution--I think you will see more companies rethinking their compensation and bonus systems in the future. The successful ones will focus on improving culture and providing motivation at a deeper level than money alone. As Franklin D. Roosevelt said, "Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort."