Business Insight: Time to rethink bonus culture as worker incentive

The common wisdom is that incentives and bonuses improve performance and get better results for organisations. Intuitively, this makes sense, as we all feel that an extra effort deserves an extra reward. Just ask anyone in most workplaces if they are prepared to do a little more for a bit more reward, which could be in the form of time off, performance bonus payment or longer-term incentive payment, or even a gift or credit. Almost everyone will say, Yes, of course! And the justification, if one is required, is that the harder you work or the more sales you make the more reward you should receive.

30 or 40 years ago in Australia, bonus systems were normal in manufacturing industries, where the more items the operator produced in a shift, the more monetary reward was available. The Production Bonus was enshrined in awards and sanctified in practice! However, the reality was that the production bonus system led to an increase in defects and less regard for customer quality requirements. It also led to unsafe working practices, including removing machine guards which slowed down production. Many accidents were attributable to such practices as well as other corner-cutting and time-saving practices. But the flawed thinking behind the production bonus system has continued into our modern industries such as banking and finance and occupations such as salespersons and service operators.

I worked for many years in management roles in the banking industry in Brazil and witnessed the impact of petty corruption on organisational behaviour. In Australia, the banking and insurance industry have embraced systems of incentives with great gusto and many of our executives are paid obscene levels of salary plus bonuses that are not even clearly related to organisational performance. The Royal Commission into Banking and Finance has exposed the downside of this approach, as the outcomes have been staggeringly disastrous. Greed has been unleashed and the consequences will remain with us for generations. How then do we regain integrity in our business communities?

I believe that the Human Resource Management function is critical to rebuilding the ethical fabric of our business communities. Our business leaders and business owners must enlist HRM professionals who understand the dynamics of building ethical organisational cultures to help restore honesty and integrity both within organisations and between organisations and the broader community. Financial integrity and organisational honesty depend upon the judgement of right and wrong actions at all levels of an organisation. HRM professionals can assist organisational leadership to strengthen the human and ethical dimensions of the major business challenges facing us today - and the answer will not lie with more incentives and bonuses!

This article originally appeared in the Business Insight section of the Gold Coast Bulletin newspaper on 03/11/2018 and is for general information purposes only.