A World turned upside down
The on-going debate on city bonuses is important because the bonus culture has leached in to the public sector. The assumption is that bonuses work in that they motivate employees to work harder and to become more productive. But evidence that bonuses work in this respect is hard to come by.
In 2003 the Harvard academics Nancy Katz and Michael Beer asked more than 200 senior executives in more than 30 countries about their bonus intentions — only to discover that the vast majority of those executives thought that bonuses had little or no effect on how their employees or businesses performed.. Boris Groysberg, an associate professor in the organisational behaviour unit at Harvard Business School, published Chasing Stars: The Myth of Talent and the Portability of Performance on the issue a couple of years ago. “Exceptional performance is far less portable than is widely believed,” he said. “We found that mobile stars [bankers who leave one company for another] experienced an immediate degradation in performance that persisted for at least five years. Thus their exceptional performance at their prior employer appears to have been more firm-specific than is generally appreciated. Financial compensation is a lever [in motivating success] but it is not the only lever and it is the most overused lever. Banks behave as if stars deserve and should appropriate all the value they generate, but stars without the companies they work for might not be stars.”.
One of the most influential management studies ever carried out was by the psychologist Frederick Herzberg. He investigated motivation at work concluding that although pay and conditions could cause dissatisfaction, the reverse was not true: they didn’t generate satisfaction, which came from factors intrinsic to the job itself (challenging work, recognition, responsibility). People consistently overestimate the importance of money for others but for themselves, money is more likely to be a dissatisfier than a satisfier.
Disaggregating one individuals performance from those around him is also hugely problematic, as success is more often down to teamwork than individuals working alone. A fact that impacts on how you might incentivise good teachers. Just how much of a pupils success can in practice be laid at the door of an individual teacher?
With correctly-run payment systems, a bonus should be a one-off reward for exceptional performance or the attainment of a specific performance target in excess of the day-to-day demands of the job; it is not an inducement to persuade someone to stay with the employer which is one of the key justifications for city bonuses. Indeed there is a compelling argument to make that bonuses encouraged the type of risk taking that got the financial services sector into the mess that was the Credit Crunch
As a correspondent to the Times pointed out this week ‘The job-holder’s salary should reflect the employee’s value, and should reflect the skills, expertise and personal qualities required for effective performance. The banks’ argument for giving bonuses as bribes to prevent their employees drifting away would suggest that their payment systems need revision.’ This is particularly so given that most of the top bankers receive hefty bonuses even if the shareholder value of their respective company remains static or indeed falls. Look at the value of Barclays Investment arms shares over the last couple of years if you don’t believe me. The main objective of private sector managers is to increase shareholder value. It is equally true that the bonus system doesn’t really work in the public sector either. Surely most public servants are working to the best of their ability most of the time, so a bonus is not going to make much difference. And if they only improve if a carrot is dangled in front of them, they are probably not suited to public service. Public Servants if they are doing their job should be improving Public Value ensuring that their Departments are delivering services more efficiently and are improving productivity. There are no clear benchmarks in Departments to measure such outputs. Bonuses are now treated in many Departments as simply part of the salary package. If you were asked to identify the most dysfunctional Government Department you would probably rate the MOD in the top one or two. Certainly most servicemen do. The MOD handed out over £47m in bonuses in 2009 , with one official trousering over £84,000.
My case rests.