I was chatting to my friend Stephen this morning. He’s starting a new job where he’ll be recruiting a new team and he’s thinking about remuneration and how to design a commission or bonus system. We were talking about what makes for a motivational (or demotivational) commission structure and we ended up with these three key points :
1. You should start by understanding that money is the worst motivation tool.
It’s a necessary evil in some cases, but it is at best only partially effective and at worst it is destructive or demotivational. There are actually very few people who are truly “coin-operated” and a good percentage of those you wouldn’t want in your organization anyway because some of them are truly unpleasant. So the reminder: coin-operated people who are still on-culture, team players who look at the long-term and the bigger picture, to be honest, are few and far between. Stephen was a great example himself – he talked to me about the point where things changed in his current job, when he used to be motivated and then was not. He remembers that inflection point really clearly and it had nothing to do with money, his remuneration package had not changed – it was actually everything to do with recognition (or lack of) and that’s another story!
2. The only bonus and commission systems that work at all are really simple: if you can’t write it – all of it, on a small post it note then keep working on it.
If it is to have any hope of working then the people it is aimed at need to be able to know how it connects to their actions really easily – every time they pick up the phone or meet a client or do whatever is required for them to earn it and exactly what they will earn. When I worked for a big corporation years ago, we had an annual bonus that was paid out based on the most amazingly complex formula that included some magic percentage of what my personal achievements were, some percentage of my business unit, something to do with my division and then something about the overall global company. To be honest I never quite understood what business unit or division I was in (we kept reorganizing) so none of us ever had any idea if we would get a bonus or not, or really why. Whatever money that was paid out had no impact at all on ur motivation or performance and it was all really a mystery.
3. It needs to be fair.
This sounds obvious but you need to work hard to make sure it is fair and most importantly is seen to be fair. Don’t make the mistake of just making sure it looks fair to the team or role it applies to, make sure it looks fair to everyone in the company. One of the things I learned from Ben Horowitz in his “Nailing the Hard Things” seminar at Stanford was to look at my decisions through the lens of the whole company. Will it look fair to everyone? If not, you run the risk of demotivating other teams that it doesn’t apply to. Money is a poor (but sometimes essential) motivator of some people but unfairness is a very effective demotivator of all people.
And finally, as someone reminded me last week, if you’re ever in doubt as to whether to pay bonus or commission, if something odd has happened that falls on the edge of the rules, unless you strongly suspect fraud or deliberate bad behaviorism then pay it anyway, always err on the side of the employee. They will love you for it, it shows huge respect for what they are doing and everyone in the team will be truly motivated by the message it sends.
Good luck – and if you think I’m negative on money as a motivator then watch this video from Dan Pink. It’s an animated video summary of his book Drive and he makes me look positively enthusiastic on monetary motivation!