Bonuses can indeed change motivation, but only marginally so. People are motivated by many factors and compensation is only one of them. The exact motivational formula is specific to each individual, but as psychologist Harry Harlow noted in his monkey experiments in the 1940s, compensation may demotivate people as well.
If a bonus is an ingredient, a 10% increase in that motivation will increase the result by 10%, which is great! But we need to go back to skill, which is a more binary part of our formula. Business development is a lot like swimming—before you reach a certain level of proficiency, your results could be disastrous no matter how motivated you are. If you can’t swim, you drown even if you really try not to.
This is why bonuses tend to only change the results for those already developing business. The others simply don’t have enough skill to produce any result, and trying to push them into the water doesn’t really help.
So let’s look at the formula this way:
Business Development = Opportunity x Skill x Motivation
Now we have introduced a new factor. Even with the advantages of skill and motivation, we still often lack opportunity. Your professionals are often already capturing all the opportunity available to them, and to create more they need a change in strategy and perhaps more resources. (To complicate the formula further, realize that opportunity is also a function of motivation and skill.)
Common Business Development Bonuses
I don’t want readers to walk away thinking business development bonuses are a bad idea. They do send a clear signal to an organization that growth is a priority.
Here are some examples of bonuses I’ve seen in action that are quite effective (each strategy assumes the professional’s primary compensation is salary):
• Many advisory firms pay 25% to 30% of the first-year revenue generated by a new client as a bonus to the professional that developed the business. The bonus is paid quarterly as the client fees are billed and collected. I like this system because it is simple, there are no complex calculations and there are no cash-flow issues. The cost is reasonable (see the last section) and the total amount earned can be quite significant. If a professional generates $50,000 in new client revenue in a year, he or she will earn a bonus of $12,500 for that. This is a good incentive for a lead advisor, assuming that person also has a good salary and wins other bonuses for achieving other performance goals.