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02/27/2014

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We've known for a very long time that people are loss-averse, and Behavioral Economics confirms it.

It logically follows that a bonus program might be structured as:

You will get X.
If Y occurs, you will get X-Z (where Z is less than or equal to X).

I'm not holding my breath waiting to see anyone adopt something like this.

No danger of asphyxiation, Tony, because I HAVE seen that type before. Not very many, mind you, because too many folks controlling the bonus design process are excessively concerned about backlash from plan participants who fail to pass their gates and are "denied their fair share." Explaining that their equitable share properly should be absent or tiny fails to please the entitlement-minded who expect every incentive to be a guarantee. As long as managers give popularity a higher priority than producing the required output results, that problem will persist.

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