By Naked CIO, 3 November 2008 08:00
COMMENT
Do bonuses reward the right behaviour? The Naked CIO airs his feelings on the matter.
Sitting around the boardroom I have found that more and more board members think in short-term time frames based on the budget year.
I also see some ridiculous compensation plans that expose the barrier between have and have-nots - those that qualify for bonuses and those that do not.
I believe incentive plans detract in some ways from managing and leading the business based on the best interests of the company. They certainly provide significant motivation for individuals to perform - but at what cost?
All too often the might of money causes individuals to act in their own self interest for short term gain while ignoring long term benefits.
At a time when we are all feeling the strain of financial constraints, this bonus factor becomes even more prevalent. To meet profit targets on lagging revenues means cutting costs across all areas - but what these cost cuts really achieve is a higher profit ratio which in turn leads to big bonuses for those that brought it about.
If the logic is followed all the way through this generally means laying off people or cutting project funds in order to sustain one's individual income. I realise all senior leaders have fiduciary responsibility and this could be a grey area, however at the same time I witness on a daily basis moves called 'strategic' which stink of selfish opportunism.
I'm sick of it.
I am sick of leaders making decisions based on no sense of real business benefit but on short term reward for this year's budget. Maybe one of the reasons I am sick of it is that IT is a key and significant target for this profit line grab.
Yet in reality more investment in IT and more long term strategic vision to the principles of applying IT and organisational processes would improve many if not all organisations.
I have been bold enough to argue that given 24 months and a significant amount of capital I could rid our organization of 20 per cent of its administrative and operational costs. I believe this can be achieved.
It should seem that a payback ROI of one year and a long term reduction in cost would be attractive to any executive, yet this type of initiative is rarely considered in any material way. The fact is this would offer no possibility this year to line the pockets of those that I am pitching it to so therefore it has no real value in their eyes.
Instead they all agree cuts are necessary but at the same time acknowledge these cuts will hurt the ability of the organisation to operate effectively and will have ramifications in the years ahead.
Leaders in today's boardroom lack the fortitude to make decisions that may impact their compensation but benefit their company - and yet isn't the former why they are employed in the first place?
Unless compensation plans have universal application and a strong tie to a strategic mandate, they are impeding the success of companies throughout the UK and the world.
Comments
There are 11 comments. Join the discussion
1. anonymous
Good article but about 15 years late.
I'm sick of the corporate obsession with bonuses that directly cause the loss of jobs and I've seen it get dramatically worse in the last decade or so.
Good IT staff are leaving in droves (I've nearly finished an OU degree to enable me to switch career) because of this and the other corporate obsession that is just as destructive, off-shoring.
This is a disease that has been imported from the US and imo, has badly damaged the UK economy. Those countries that have resisted will reap the rewards post credit crunch.
2. Karen Challinor
for once I actually agree with you
but as anonymous of london says you are about 15 years too late, personally I'd say it's longer, more like 25 to 30 years too late, but there again you are new to this so I'll forgive you.
the executive bonus system, knee jerk cost cutting and short termism, where anything over 6 months is classed as a long term project have been poisoning british industry for a very long time.
3. Stuart Fawcett
True!
But this reflects the short-termism that pervades our service orientated culture.
Don't worry - the bigger configurable application vendors are walking towards SAAS systems that we can configure in an instant, we won't need to worry about hardware replacement cycles or licensing. In fact I reckon that Venture capitalists will be soon able to rent business model systems by the week - building them up and tearing them down as the market changes. We will increasing become dependant on rented platforms that we don't need to understand. Is computing dominance the new black gold?
4. Radical Meldrew
Couldn't agree more, the 'everybody needs to work for the common aim' platitudes from senior management don't actually seem to apply to them. It almost seems as though a full frontal lobotomy is a primary requirement for boardroom status these days - they unashamedly favour themselves over the company's long term prospects every time and expect support from staff and shareholders alike. Is it greed, lunacy or arrogance? All I know is that none of it makes any sense!
5. drew stephenson
i can only assume you are the CIO of the company i work in. Alternatively we're all screwed together...
6. anonymous
All to many times, in companies that use some sort of Performance Management, no matter what the peer reviews that come in, the manager will give a much lower rating than what was deserved. I've been in several companies and saw this all too often. What this does when everything is said and done is target bonuses/raises to the upper echelon and the people doing the work (often in a management vacuum!) do *not* get rewarded.
A good friend, when at her year end review, solicited feedback from 2 dozen peers. She has maybe 10 hours contact with her direct manager who is in another state. On a scale of 1-5 (5 being a star player) she received:
2 who rated her a 5
11 who rated her a 4
3 who rated her a 3
0 who rated her a 2
0 who rated her a 1
Her manager you may ask? The magic number that her pay raise and yearly bonus depends on - would you believe he rated her an overall 2!?
When you look at this from the top end you get the picture you painted. But - it ripples further down the line. Especially in companies where the top grades can garner a 50% or better yearly bonus (on mid to high 6 digit incomes) while the lower grades can only garner a 10% bonus (on low to high 5 digit incomes). And a rating of 2 gave my friend 33% of her "expected" bonus. Net bonus, instead of 10% of her yearly wage was 3.33%. After taxes it was less than one paycheck. Her boss got 95% of his 50% bonus and he took home around $200k.
7. anonymous
I guess the Naked CIO is a 'have not' then ?
You just have to look at how unrestrained city bonus culture has lead the world to the abyss of financial ruin to realise that those running many companies have a dictionary where 'fiducary' has been deleted and all they do is run their business (into the ground?) for their own 'fat cat' self benefit .
8. anonymous
SAAS observation earlier and cloud - wonder how long until they start trading futures in it, and obtaining it via the purchasing dept :-)
9. Walter
Stop it you sound like someone who actually cares about their business and not the short term bottom line.
Seriously, the things you speak of sound like you favor a TQM style of management. Eliminate performance based bonuses, improve processes, empower employees, think long term. Good for you.
10. Chris Goodman
The highly paid salaries should be reward enough for doing an excellent job. Failure to do an excellent job should be marked with a contractual deduction from salary.
Where it is desired that a bous is paid for success then the basic salary should be minimal and any bonus kinked to success and dividend.
Under no circumstances should any bonus be paid to unsackable civil servants.
11. anonymous
Agree with anonymous of Denver, companies alter things to suit their needs and don't seem to need any justification. I was given an annual grade, but, six months later that grading was reassessed by senior management and downgraded on the basis that I hadn't provided sufficiently good information in a PowerPoint presentation which was a new additional requirement to the accepted performance monitoring process. As a result of this I am now suddenly an 'underachiever' and need mentoring and monitoring and am unlikely to be eligible for a full pay rise! They shifted the goal posts well after the event so I can do nothing other than complain to try and alter this judgement. I suspect that senior management had targets and lowering the wage bill may have been one of them?
PS: On a lighter note, this wasn't personal - they downgraded everybody in our section.