Can Bonuses Ever Be Justified Again?
With the country suffering through the worst recession in living memory there has been understandable public dismay at large bonus payments to senior executives. When those bonuses have gone to executives who are widely seen as responsible for creating the financial crisis, that dismay has tipped over into anger.
Sir Fred Goodwin of the Royal Bank of Scotland, commonly known as Fred the Shred, has been at the centre of all this, having pocketed a pension fund worth more than £16 million, despite bringing one of the UK’s oldest and most respected banking institutions to its knees. In March he became the victim of an anti-banking group called ‘Bank Bosses Are Criminals’ who vandalised his home.
In February, Royal Bank of Scotland, now 70 per cent owned by the taxpayer and which has received £20bn in public funds, cut its planned £1bn bonus pool by 90 per cent after pressure from the Government.
In the US, President Barack Obama has expressed anger at $165m bonuses pledged to executives of bailed-out insurer AIG, calling the payments “an outrage”. “It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165m in extra pay,” he said.
Yet despite this, City workers have continued to pocket their bonus payments. survey conducted by the City recruitment consultancy Morgan McKinley revealed that 73 per cent of those working at 200 banks and other financial institutions in the UK received bonus payments 꽁나라 in 2008. 16 per cent said their bonuses had actually increased.
All of this has served to put the issue of bonuses firmly under the spotlight. While the issues have centred on bonuses awarded to bankers, it has led some in the sales profession to think about the bonuses that they receive and pay. Can bonuses be justified, and if so, how should they be awarded?
Questioning sales bonuses
Leigh Ashton, MD of The Sales Consultancy, a company which provides training and advice to sales teams at SMEs and large corporates such as Barclays, believes that bonuses have little power to motivate salespeople. She says: “A common error many sales managers make is to see bonuses as a motivation tool. The trouble is that people are rarely motivated by money. There are others sticks and carrots you can use for that.”
She does believe that bonuses are important, but only because they are traditional. “Salespeople are used to receiving bonuses,” she says. Yet, few finance officers will be satisfied with that explanation for such a large debit on the balance sheet. Bonuses, if they are to be justified, need to have a clear, beneficial effect on the sales and profits of the company.
Most observers agree that bonuses can do this. The promise of significant bonuses can help to recruit top salespeople, and it can be an effective tool encouraging certain behaviours and outputs – tell a salesperson that they will get a 10% bonus if they visit one extra prospect a week and chances are they will find a way to do so.
The problem is that many bonus schemes for salespeople are not devised or implemented effectively The company might find that the salesperson is visiting an extra prospect a week, but it produces no extra sales because the salesperson is rushed in that meeting. Or they may have no way of actually telling whether or not the meeting ever took place.
Recent research from consultants OpenSymmetry found that 63% of UK sales directors worry occasionally or frequently about the accuracy of commission payments to their sales staff. 44% of respondents regularly see commission payments at their organisation beset by errors of 5% or more. Only 28% say their commission scheme is effective in motivating their sales force.