In every single Scooby-Doo episode, eventually there comes a moment when Scooby and Shaggy refuse adamantly to serve as “monster-bait” but are then persuaded to follow the plan in exchange for a “Scooby snack.” Every year, usually around this time, almost every advisory firm gives out its own version of Scooby snacks—the annual bonuses. These are expensive—they consume as much as 7% of a firm’s total revenues. That makes them the second-largest expense behind salaries, and they exceed technology and rent expenses combined.

Given how expensive bonuses are, I can’t help but wonder if they work. If Scooby snacks can get Shaggy to walk into the cave whistling, do they have the same impact on the performance or behavior of employees?

I will jump right to the conclusion: In my experience, incentive compensation (bonuses) have very little impact on the long-term behavior of people. Bonuses will not get someone to consistently do something they are reluctant to do. What’s more, over the long term bonuses will not only not increase the amount of effort a person puts into an undesirable task but may actually cause the person to develop a resentment toward it and frustration with the entire organization.

It is very much my belief that:

1. Bonuses, by themselves and on their own, do nothing to change the long-term behavior of the professionals.

2. Bonuses are very good at rewarding and perhaps reinforcing behavior that already occurs. That in itself is a very good and legitimate use of incentive compensation.

3. Bonuses can upset a lot of people in a lot of different ways. At times, the amount may not meet the employee’s expectations. At times, the employee’s bonus is less than it was the year before. At times, the formula for bonuses may fly in the face of the stated culture. At times, “who got what” may be different from the perception of merit. There are so many ways in which Scooby snacks can lead to growling.

If you want Shaggy to go into the cave right now, you can pay him for it, but if you want to turn Shaggy into a brave cave explorer, you have to put down the Scooby snacks and try something else.

There are many examples showing that bonuses don’t change long-term behavior, and I will start with an example from my own experience. I remember a large and well-known client firm I worked with—which employed a group of 15 advisors. The firm paid each of them a salary, and those salaries ranked easily in the top 25% of the industry. The leadership of the firm, however, was dissatisfied with the team’s business development (sales) efforts. Of the 15, only one was consistently bringing new clients to the firm. Two others had some success, but it was inconsistent. The rest simply did not contribute to bringing new clients in—they just didn’t. The CEO very much believed that this could be fixed with a new bonus plan—thinking that if the firm paid a lot for business development then this would motivate everyone to do more of it.

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