Incentive Pay Considered Harmful(joelonsoftware.com)
joelonsoftware.com
Incentive Pay Considered Harmful
http://www.joelonsoftware.com/articles/fog0000000070.html
23 comments
What makes you think that rewarding someone with a cookie of actual, monetary value avoids the morale problems inherent in rewarding someone with a cookie made of polished lucite? You've still singled someone out as different, created jealousy and division, and alienated the team members who weren't equally rewarded.
The problem Joel is describing is inherent to rewarding individuals, instead of rewarding teams. Ratcheting up the value of the award doesn't solve the underlying problem.
Not incidentally, Google found this out the hard way with their Founders' Award program (http://members.forbes.com/global/2007/0702/028.html):
"Early on Page and Brin gave 'Founders' Awards' in cash to people who made significant contributions....but it backfired because those who didn't get them felt overlooked. 'It ended up pissing way more people off,' says one veteran."
The problem Joel is describing is inherent to rewarding individuals, instead of rewarding teams. Ratcheting up the value of the award doesn't solve the underlying problem.
Not incidentally, Google found this out the hard way with their Founders' Award program (http://members.forbes.com/global/2007/0702/028.html):
"Early on Page and Brin gave 'Founders' Awards' in cash to people who made significant contributions....but it backfired because those who didn't get them felt overlooked. 'It ended up pissing way more people off,' says one veteran."
Right. It's vital that incentives are not made to feel like "awards," but are instead seen as part of the compensation structure. (I think that the "incentive pay" Joel's talking about really means "public awards, possibly with cash associated.") "Incentive pay" in the simple sense of "pay tied to performance" is not necessarily divisive if it's handled tactfully and can be a substantial motivational force. I mean, that's what PG's always writing about in his essays—the power of a startup is that it harnesses pay very directly to performance.
If you keep it secret, then I suppose that incentive pay is less harmful. The thing is, do you really want to go that way?
I think that the only way that incentives are not harmful is if they're spread evenly across teams and tied to product success in the market. Most people can grasp why the team behind a successful product is paid more. Even then, though, you risk alienating the teams that don't do quite as well for reasons that aren't in their control.
I think that the only way that incentives are not harmful is if they're spread evenly across teams and tied to product success in the market. Most people can grasp why the team behind a successful product is paid more. Even then, though, you risk alienating the teams that don't do quite as well for reasons that aren't in their control.
HN's karma system is a sort of "incentive superficiality", yet it seems to work well enough. Perhaps a similar model of collective peer review could be applied to the work place. It might address some of the injustices that Joel mentioned, such as the strategic thinker whose insights weren't recognized by management, but valued by his peers. Would you be willing to "up vote" your colleagues?
Joel isn't considering the right incentive: cash.
The way to get someone to perform is to give them a stake in the yield of their performance, i.e. a profit share.
Joel has also elsewhere that he's a big believer in paying salesmen incentives in cash (via commissions), so I don't think he'd disagree with you there.
That sometimes works, if the company is large enough to have real profits but small enough for the individual's contribution to matter.
There's nothing wrong with incentives, really, as long as they are (1) meaningful, and (2) fair. But in practice, they never are, so Joel's points are all valid. Really, this is just another special case of "bad management sucks". A good manager in a good system is capable of providing incentives that motivate her employees. A bad one can't, but will do it anyway. So it looks like the bad incentives are the problem, when really it's the process that's flawed.
There's nothing wrong with incentives, really, as long as they are (1) meaningful, and (2) fair. But in practice, they never are, so Joel's points are all valid. Really, this is just another special case of "bad management sucks". A good manager in a good system is capable of providing incentives that motivate her employees. A bad one can't, but will do it anyway. So it looks like the bad incentives are the problem, when really it's the process that's flawed.
This isn't Joel's opinion. He's rehashing Alfie Kohn and Tom DeMarco. I'm guessing they have, in fact, considered "cash", as both have been published on the topic in peer-reviewed venues.
See also:
The Pmarca Guide to Big Companies, part 2: Retaining great people:
http://blog.pmarca.com/2007/07/the-pmarca-gu-1.html
"Don't do arbitrary large spot bonuses or restricted stock grants to try to give a small number of people huge financial upside....It sounds like a great idea at the time, but it causes a severe backlash among both the normal people who don't get it (who feel like they're the B team) and the great people who don't get it (who feel like they've been screwed)."
The Pmarca Guide to Big Companies, part 2: Retaining great people:
http://blog.pmarca.com/2007/07/the-pmarca-gu-1.html
"Don't do arbitrary large spot bonuses or restricted stock grants to try to give a small number of people huge financial upside....It sounds like a great idea at the time, but it causes a severe backlash among both the normal people who don't get it (who feel like they're the B team) and the great people who don't get it (who feel like they've been screwed)."
So uh... what's the alternative?
Increased project responsibility, less micromanaging, team-based recognition, fair and consistent compensation, and companywide profit sharing.
And the underlying article would be much more valuable if any of the solutions you give were mentioned.
Um, thanks? This is one of my favorite Joel articles. Highly recommended.
Edward Deming (http://en.wikipedia.org/wiki/W._Edwards_Deming) is probably the original proponent of this idea. He believed that the best motivator is essentially pride - a job well done is its own reward - and that good management means eliminating anything that gets in the way of that, including incentive programs.
Just to expand on my own point, his theories owe a lot to Maslow's Hierarchy of Needs (http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs). You have to satisfy more "base" needs (shelter, salary, self-esteem) but the key motivator for intelligent people is opportunity for "self-actualization."
The point Joel is making is that it is hard to objectively quantify individual contributions to a group effort in software development. The points about the 'team glue' and the 'researcher' are especially poignant. It's hard to put a value on those soft skills.
The Kohn article he tries to link to is available here: http://www.msubillings.edu/BusinessFaculty/larsen/MGMT452/HR...
...almost as harmful as "considered harmful" essays:
http://meyerweb.com/eric/comment/chech.html
http://meyerweb.com/eric/comment/chech.html
Interesting article, but hardly news 8 years after publication.
Granted that many of news.yc's readers are in their early twenties, it would put them at an age where they probably wouldn't have been reading j.o.s. 8 years ago. Plus this is still relevant to readers' interests and would have made just as much sense as if it was written twenty minutes ago.
I worked in finance, where incentive pay is substantial, and it has benefits as well as problems. Salaries in finance are low-average by NYC/Chicago standards, while bonuses are high-- starting at 25-75% for junior positions, and rising to 1000+% at a senior level.
Good bonuses have a positive effect on morale, but the real kick finance gets out of the system is in recruiting. The possibility to take home a $1 million bonus check as a fifth-year employee, brings in a lot of bright, young people who don't know what else to do with their lives but are willing to work very hard. Finance's rather unique compensation system certainly stokes people to put out a lot of effort.
The downside is that, since everyone is after the same things, politics come more into play-- if someone feels shortchanged in project selection, like he's not being groomed to be a future rock star, he's going to do shitty work. In tech, people are after interesting work, and everyone has a different opinion about what's interesting, so the game is not zero-sum; in finance, they're mostly looking to advance their careers and make money... which approaches zero-sum as the size of the company increases.
Good bonuses have a positive effect on morale, but the real kick finance gets out of the system is in recruiting. The possibility to take home a $1 million bonus check as a fifth-year employee, brings in a lot of bright, young people who don't know what else to do with their lives but are willing to work very hard. Finance's rather unique compensation system certainly stokes people to put out a lot of effort.
The downside is that, since everyone is after the same things, politics come more into play-- if someone feels shortchanged in project selection, like he's not being groomed to be a future rock star, he's going to do shitty work. In tech, people are after interesting work, and everyone has a different opinion about what's interesting, so the game is not zero-sum; in finance, they're mostly looking to advance their careers and make money... which approaches zero-sum as the size of the company increases.
They can consider it whatever they like, so long as they pay me :-)
IMX, incentive pay isn't the same way—provided that it's actually significant, as opposed to a largely-meaningless couple hundreds of dollars or something of the sort—because it's so useful that it's an end in itself. "Don't make your employees feel like they're jumping through hoops" is a good point, and companies would do well to remember it, but when rewards are substantial in and of themselves that problem doesn't come up that much. (Real incentives can still have a bad effect on morale, but in my experience their positives outweigh their negatives.)