Should We Be Wary Of Bonuses And Targets

Targets, targets, targets. What is a manager to do? We all live and die by the targets that we are set but is chasing targets in order to achieve bonus always in the best interest of the company? In this article we examine whether that is the case.

The first thing worthy to say about targets is that they are absolutely necessary. Managing a business without having targets is like a pen without a nib Pointless. They at least provide a yardstick of where the business is at and where it has come from and in truth can be very motivating for all involved.

But why do they seem to always bring out the worst in people? It’s generally accepted that the introduction of a bonus to a target immediately provides the opportunity for managers to “work the system”. This has been seen a lot recently with the bankers taking a bashing over their general behavior and regard for bonuses. So, in this light can targets be seen as a bad thing?

Targets ultimately mean bonuses and creating a bonus scheme that creates an environment where all managers act in the best interest of the business is virtually impossible. Say, for example, a manager has a retail target of £40,000 per month and say that anything over that he keeps 25% of as a bonus. If he or she gets £50000 sales in a month then 25% of the extra £10000 would result in a £2,500 bonus for the manager. Great, right?

Not exactly. The problem is that if the manager gets the £50,000 retail sales, the target for the next month will be (drum roll please) at least £50,000. So if the manager does the same amount of work and gets the same result he or she will go from earning an extra £2500 to an extra 0. The end result of this is that the manger will learn to sandbag! Sandbagging involves not doing as much business as you can in order to keep future targets low and is something of an art amongst experienced managers but if you are having a great month then it may actually be in your interest to not exceed your target by quite so much and avoid all that follows.

This should also leave senior management in a bit of a quandary as to what type of bonus scheme to put in place. Do you use accelerators? Or maybe decelerators? Do you just give a target for reaching a certain goal? The answer is not at all easy to come by. The slightest tweak can and often does result in perverse targets.

The reality is that the introduction of a bonus will always result in some kind of negative reaction from those responsible for hitting the relevant targets. It would also be fair to say that senior managers across the board seem to underestimate the effect that poorly structured targets can have on business performance.

Related Posts

Best Practice vs. Hitting Targets
Smart Targets
Understanding Perverse Targets

Comments are closed.

This entry was posted on October 28, 2012 and is filed under Managing Employees, Targets. Written by: . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.