First of all, let me say that I don’t have a problem with bonuses. And I will offer you 2 examples on how it might be done, such as here:
Something extra that is good
That is something I can support. What I can not support is handing out bonuses on short term goals (3 months), that turn out to be worth nothing 1 year on. And with the latest financial crisis, there is reason for concern when you read this, this and this.
My thoughts? Here are 2 ideas:
1) Banking bonus: create a target for a financial product that is linked to the duration of the project. If you launch a 5 year fund, only pay a bonus to the manager after the 5 year target has been achieved. This will encourage the manager of that fund to have a 5 year view, and will (hopefully) avoid short-term risk-taking. At my company we have in the past implemented 3-year growth targets, with extra bonuses for certain accounts. And it worked, the account teams that signed up all overachieved and delivered robust growth.
2) Management bonus: only pay a bonus if the management of a company has achieved positive growth. What do I mean with this? Maybe naive, but don’t pay a bonus to the company management if the profits of the company are due to layoffs. Instead of focusing on cutting back on the workforce, find creative and new ways of gaining business. Or find ways to do your business in an economical way, without reverting to firing people. One example is Philips. They reported a profit yesterday, and attributed it to cost savings that included laying off thousands of people. Although the management delivered value to the shareholder, could they have done it differently?
How much more creative could the world’s managers really become if this would be implemented? Would we see a better world?
