ORGANISATIONAL BEHAVIOUR

Organisational Behaviour: Managing the Performance of Individuals

Organisational Behaviour: Managing the Performance of Individuals

Introduction

A challenge faced by many firms is how to encourage managers to undertake risk levels that are compatible with overall firm performance goals. Incentive compensation that is tied to financial returns is a common control mechanism that is meant to induce managers to strive for higher returns and/or to meet return targets. Prior research has found that under many circumstances incentives can affect behaviour in terms of effort (Bao Bao 2004 pp. 1525-1557).

Organisations want to motivate their employees so they generate improved business results. If you actually asked an employee what would induce them to do such a thing, you'd be pretty likely to hear them say, "If you pay me more money…." (Cahan 1992 pp.77-99).

In fact this expectation has become SO ingrained that leaders simply assume it will be so. They are almost loathed to ask anyone to do anything more if they cannot satisfy the outstretched hands. But this assumption means leaders can give up on trying to motivate their people through any other means (Deegan 2006).

Organisations - which tend to be driven by financial performance - assume the same thing will work for their employees. Superficially they are right, because that's what employees usually say they want.

Bonus

A bonus is part of someone's compensation package. Interesting word, "compensation". The Thesaurus states "make up for, amends, atone". It implies that someone has suffered something for which they deserve recompense. It doesn't imply that compensation is a reward for something positive (Elliott Treanor 2006).

Now we get to the important subject of motivation. Studies of large numbers of employees reveal that the most important factor in motivating employees are things like recognition, development, fast-pace, decision making. Coaching work with senior leaders also shows a surprising number of similar non-monetary motivators (Gaver Gaver Austin 1995 pp.85-107).

So, the fact that people are compensated by money for extra effort can mask the fact that what really motivates them is lacking. In these circumstances, work becomes more of a sufferance and more money (compensation) is required to compensate for the absence of other motivating factors.

Outside finance, bonuses are a very small component of total earnings because people need to be sure of their income flow. The extra money is nice, but in most jobs even the most successful get bonuses only in the tens of per cent. Finance is different, partly because even when it was run more sensibly than it has been in recent years the revenue fluctuates a lot (Holthausen Larcker Sloan 1995 pp. 29-74).

Firms need the flexibility that comes from holding their fixed salary costs down to a level where they can meet them even if things go bad. But that means that when things go well, there is enormous upside, with bonuses in the many hundred percents. Most people at big investment banks do not think of a bonus at all. They just get told at the end of the year what their total pay will ...