I don't know about you, but I just love Peter Cappelli. He is one of the "thought" leaders in HR. You might not always agree with his ideas, but you have to admit that he is always willing to shake up conventional wisdom and bring creative ideas to the table for consideration.
I read one of his articles the other day entitled “Rethinking Incentives and Discipline” in HRE. I thought I would share some of his thoughts with you.
What if managers were given their bonuses (at target) at the beginning of the year when goals are developed and then a portion, or all of it taken away at the end of the year if some or all of the goals were not met? If they were met, the target bonus would be kept. If goals were exceeded, managers would receive additional money up to the maximum allowed. The equivalent of “claw backs” for executive and sales compensation.
He bases this idea off a study conducted at the Chicago public school system by a couple of university economics professors. The study included 150 K-8 teachers from Chicago Heights, a low-income community in Illinois. One group agreed to work under a traditional year-end bonus structure, where they could make between zero to $8,000 based on their students' standardized test scores. Another group was given $4,000 at the beginning of the school year and informed that if their students' turned in below-average results, they'd have to pay a portion of it back on a pro rata basis. On the flip side, above-average student performance could earn them additional bonus money, up to the full $8,000.
The results? There was no/little change in student performance if the teacher had the traditional type of bonus payment at the end of the year. Students gained as much as a 10 percentile increase in their scores if their teacher received a bonus at the beginning of the school year. Do you think these teachers were checked for whips before going into the classroom everyday? There is no mention in the article about the psychological impact teachers and students at yearend. I guess economists don't consider that newsworthy.
The results of this study can be explained by the psychological term “risk aversion”. Risk aversion is a method of motivating behavior. It has been studied for 30+ years in psychological and economic research. Research indicates that psychologically, losses are twice as powerful a motivator as gains. People tend to strongly prefer avoiding losses to acquiring gains.
Now . . . what if we used this method in private industry for managers? Think it would work? Do you think it would end up causing stress and anxiety? Who wants to subject themselves to the stress of seeing his/her bonus stripped away? And what about employees? Would managers put extra pressure on employees and micromanage them in an effort to insure better performance?
Is this a bad idea, or just a mean one? I think it's both.
I have to disagree with Peter on this idea. I think it has more potential negatives than positives. It might lead to better performance on the part of managers---but the downside would almost certainly increase pressure on both managers and employees. Also, I really don’t think top management would ever agree to awarding bonuses to managers before they “earned” them --- even if they could be “clawed back” later.
So Peter, thumbs down. But, as always, I hope you continue to throw out new ideas. The majority of them are good in my opinion. Even the ones we may disagree with make us think about new possibilities out there just waiting to be discovered.Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career. Her true love is working with local national issues. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has also been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. She lives in Dallas and has 3 four-legged children and one Chinese daughter (it’s a long story). She’s had a life-long love of animals and the ocean. So why is she living in Dallas?
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