Bad bonuses break businesses

Bad bonuses break businesses.

(Try saying that five times fast.)

Let me tell you why and give you two client examples.

If you incentivize the wrong things then you’ll get the wrong behaviour, like a well-intentioned team member who:

• cuts a working marketing budget in an effort to save costs
• takes on too many clients at once and the delivery suffers
• buries themselves in extra work so you don’t have to hire someone else, but then neglects their core responsibilities because they’re so busy

Even if they’re well intentioned, this is what can happen.

I’ve seen this happen so many times.

Here are two examples from clients that I had just started working with, and one of the things we had to do was untangle a bad bonus structure.

1. One client had set up a profit share bonus where his whole team would get rewarded. Two months later, he’d almost bankrupted his business because of the poor design.

2. Two business partners had given a decent bonus structure to a general manager that they promoted. The business had a great year, and the GM got a big bonus. Except that the following year was a really bad one, so they had to pay off the bonus. And the GM was demotivated because they knew their bonus in the current year would be much smaller.

So if you’re thinking about a bonus for a team member, design it carefully.

If you want some help, send me a DM on Instagram, and I’ll send you my Team Reward Navigator custom GPT. It’ll help you decide on the right bonus for your team and your business.