More bonuses for everyone!

Marketplace Staff Dec 21, 2006

TESS VIGELAND: Thought we’d heard it all last week when Morgan Stanley gave its CEO John Mack a record $40 million bonus. Well, records are meant to be broken. And that one lasted about as long as a Tic Tac. This week, Goldman Sachs gave its CEO Lloyd Blanfein a $53.4 million bonus. Boy, Mack must be peeved.

In case you’re wondering whether bonuses boost anything but the ability to buy another yacht, a study out from Cornell University says they’re more effective than merit raises. Commentator Adam Hanft thinks Wall Street may be on to something.


ADAM HANFT: Today’s companies are obsessed with squeezing more productivity out of their laboring minions whether they be software designers or Starbucks baristas.

So, what does light a fire under us? Is it gentle flattery? Implicit threats? New-age teambuilding? Or just a fatter paycheck?

Well, it’s actually how you compensate. A Cornell study says that if you give a 1 percent merit raise at a cost of roughly $700 per employee, performance goes up to the tune of a productivity boost of about $2,300 to the employer.

But hold on. If you make the same investment in a bonus that’s tied to performance, you’d get an investment back of more than $47,000, versus the paltry $2,300.

But why would a one-time bonus versus a lift in base pay light a brighter fire under someone?

Economists don’t speculate about that. But commentators do. I believe that bonuses are the perfect psychological approach to our immediate-gratification, A.D.D. culture.

When something hits my wallet right now, it makes a lasting imprint that inspires me to work even harder for the next bonus. The rational merit wage simply becomes a new base level of expectation that soon gets taken for granted.

So I, for one, would love to see the bonus idea really gain some traction. But why wait for the end of the year to drop some loot on someone. Why not motivate them all year long by setting immediate goals and rewarding them when they’re met.

On one level, it does turn the workplace into a cross between Las Vegas and a video game, with levels and rewards.

But hey, America already has the most productive workforce in the world. So if we’re going to keep getting blood from a stone, we can’t leave any stone unturned.

VIGELAND: Adam Hanft is president of the marketing firm, Hanft Unlimited.

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