GUEST COMMENT: The bonus culture is a self-created myth in the collective mind of the financial world
Not too long ago, the use of bonuses was believed to be an
effective compensation system.
By providing these financial incentives, the thinking went that people would be motivated to work harder and perform better. Sadly, this doesn't seem to be the case.
Bonuses encourage the wrong type of motivation.
The best kind of motivation is 'intrinsic motivation.' This refers to the idea that people do a job well because they truly enjoy the things they have to do. They are motivated to perform their tasks well because they like to and not because they have to.
If you are intrinsically motivated, the focus is on the job itself and not on the perks it may bring.
Unfortunately, the use of incentive pay in the financial world seems to have undermined this intrinsic motivation.
Instead of being offered as a reward for a job well done, bonuses are too often handed out simply because the job was done. Intrinsic motivation is therefore replaced by 'extrinsic motivation': the bonus is no longer the reward and, instead, has become the motivation.
A psychological consequence of such an extrinsically motivated state
of mind is that, for the individual, the interest in one's job diminishes
and, ultimately, the quality of work suffers.
If the negative effect of the bonus incentive construction is so great, why keep it?
I interviewed 15 executives from different banks with hiring responsibilities. My findings indicated that the bonus culture is a self-created myth maintained in the collective mind of the financial world.
Each banker said that personally, the bonus culture had limited effect on his own motivation. However, each equally felt that bonuses were crucial to hiring and motivating others.
The thinking is that others are motivated by financial incentives, so it is necessary to invariably provide them. This is wrong. For bonuses to function correctly they must genuinely be a reward for work objectively well done. They must not be a habit. Bonuses need to return to their rightful place in the motivational hierarchy: somewhere near the bottom.
