Thou shalt not create an "objective" bonus plan

for God hath not endowed thee with such capacity

In our zeal for fairness in our bonus program (a worthy goal), we believe that if we are objective then we will have the perfect plan that will pass any stink test. And so we concoct complicated mathematical schemes replete with a host of evaluation criteria and "weighted" factors sure to influence behaviors. And then we go about spending inordinate amounts of administrative time as we compile the data - and based on what? Well, on our subjective opinions of what we feel about that person, which include our own personal biases (yes, we all have them), our paradigms, and our past experiences.

I'm reminded of our firm's "Incentive Compensation Plan" of the late '80s that I affectionately refer to as the Mandatory 10-point Must System, making a reference to boxing. This system consisted of eight evaluation categories such as marketing, leadership, responsibility, etc, wherein each employee was scored up to 10 points. To add to the merriment, personnel in any given category (associate, staff engineer, etc) were rated against each other in that category in a knockdown, drag-out battle, with the top winner subjectively given an objective 10 point score, and down the line in 10-point must fashion. These category scorings were made at each branch office and then the CEO rolled them up in a mass scoring (subjectively rating people in different offices against each other whom he never saw more than once or twice a year). Somewhere in this labyrinth of numbers was supposed to be a final objective result. It is no wonder that this system within the second and final year of its short life was known by employees as the "Disincentive Compensation Plan".

There's nothing objective about any of this - no matter how many numbers you calculate. So get over the notion that you're going to be objective, because it just ain't gonna happen. And even if it were, do you really think "your objective opinion" will be the same as your fellow manager's "objective opinion" who has his own experiences, biases and paradigms? Ever have a bonus system where everyone under Jake gets big bonuses and everyone under Zeke gets small bonuses? That's because Jake and Zeke see things differently and act accordingly. No manner of number crunching is going to solve the Jake-Zeke conundrum.

I suppose if our bonus plans were 100% objective they'd be pretty fair, but we just don't live in that world. Realize, however, that they can be pretty fair even though by default they are subjective. But let's stop kidding ourselves about objectivity. Now say, "Amen, Brother".

See ya next blog when we take up The Third Commandment, "Thou Shalt Not Compete with Thy Selves".