Is Paying for Performance Such a Hot Idea?
Pay for performance has become virtually a religion in America. As a result, evidence that it doesn’t work as advertised is seldom heard in polite company.
Most of the caveats raised about bonuses in the business media relate to the design of particular pay arrangements rather than the general concept. These awards often reward short-term risk-taking or just dumb luck, and may be excessive relative to an individual’s real value added (as in they attribute too little value to the existing franchise and firm resources).
An article in New Scientist (hat tip reader Kevin S) raises more fundamental issues. It explains how performance-linked bonuses can be demotivating and lead employees to game the system rather than do their best work.
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