shreddedcarrotfromwsjManagement scholar Henry Mintzberg has a provocative solution to the problem of executive bonuses: Don’t trim or tweak them. Get rid of them altogether.

In a persuasive and clear-eyed essay in a special section of the Wall Street Journal earlier this week, Mintzberg says that no matter how you configure bonuses, they create twisted incentives that inevitably enrich executives at the expense of shareholders, customers, and less privileged employees.

It’s worth reading the whole thing, but here are three especially succulent morsels:

  • “If more executives these days were as creative in doing their jobs as they are in getting compensated for them, we would be in a period of boom, not bust.”
  • “All too often, financial measures are a convenient substitute used by disconnected executives who don’t know what else to do—including how to manage more deeply.”
  • “As an executive, if you want a bonus, buy the stock, like everyone else. Bet on your company for real, personally.”

7 Responses to “Kill a bonus, save a company?”

  1. “As an executive, if you want a bonus, buy the stock, like everyone else. Bet on your company for real, personally.” Amen. That’s what people who found and work in small businesses are doing everyday!

  2. Finding creative ways of motivating individuals is definitely an lost art form. It’s the Small Business that, out of necessity, finds ways to creatively and sincerely reward the people that contribute to the company’s success.

    I feel this creativity and “right” thinking is what is causing a shift toward smaller, more specialized units in the world.

  3. Ben Knight says:

    Amen! Great find, thanks for sharing!

  4. Ed Gandia says:

    Wow! About time someone brought this up. It’s not just bonuses. It’s amazing to me how much money big companies waste every year in unnecessary travel, executives’ pet projects and junkets that do little to motivate the workforce.

    We need to get back to entrepreneurial thinking and reward systems in ALL companies, not just small businesses. It works while the business is bootstrapping. And it works even when it has grown way beyond that.

    Many companies wouldn’t be in the mess they’re in if they had just spent their resources more cautiously when times where good.

  5. Ben Knight says: Seems the idea is evolving… Sadly I think there needs to be more compensation for the workers.

  6. A fundamental problem with the bonus culture on Wall Street is the morphing of the ratio of base salary to bonus in the last few decades. Employees are paid at a very low, relatively, base compensation rate, work the expected 70-100 hour weeks, and expect to see the compensation for those efforts in the annual bonus. This is completely out of whack.

    Base pay should be equal to compensating for the expected workload, whether that is the standard 40-hour week or the ridiculous 100 hour week. Bonus should be just that – above and beyond compensation for those who go above and beyond their colleagues in effort. When nearly every employee receives significant bonuses, this differentiation is clearly lost.

    Rather, sincere, specific, frequent appreciation and recognition is the path to acknowledge and reward exceptional effort — and open this to all employees for participation.

    More on some research around this here:

  7. Steve Phelps says:

    I applaud this work. It has been known for some time by researchers, but not widely applied to business and education. If we could apply this work to the way we assess and motivate students and teachers and school leaders, that would be a revolution in education!