Mind of the Manager

What works and what doesn't in the workplace

24 Percent of Companies Pay Bonuses to Failing Performers

This is management without consequences, management without really managing.

It’s not often I come across a statistic that shocks me, but this one did. I was perusing Towers Watson’s 2013-2014 Talent Management and Rewards Study – North America when there on page 10 I stumbled upon a data point that caused me to re-read it several times to be sure I wasn’t hallucinating.

The noteworthy statistic?

24% of companies responding to this survey pay bonuses to employees “who fail to meet even the lowest possible performance ranking.”

Good lord. And this was no minor, easily dismissable study: 321 organizations participated (258 from the U.S. and 63 from Canada), and Towers Watson of course is highly respected in the compensation and benefits field.

“Most organizations implement annual incentive plans,” the report states, “to drive higher levels of employee performance. By design, these programs should recognize and reward those employees who make a greater-than-average contribution. However, we find that not only has funding trended below target for nearly a decade, but some organizations’ programs continue to pay out bonuses to even the lowest performers.

“Nearly one-quarter of North American respondents (24%) award some incentive payout to employees who fail to meet even the lowest possible performance ranking. Almost one-fifth (18%) fail to base any differences in target payouts on employee performance. These employers are not consistently paying for performance; rather, their incentive programs for employees function as de facto profit-sharing plans.”

I’d take it one step further. Not only are these companies not paying for performance, they are perpetuating management actions (or more accurately, inactions) that are massively dysfunctional on several levels.

- They’re sending a clear message that poor performance will not only be tolerated – it will be rewarded.

- They’re sending a message to top performers that there’s little point doing outstanding work, since even those who don’t will still be financially rewarded.

- They’re sending a message to their entire organization that the corporate culture values mediocrity.

I fully appreciate that management is hard work – I did it for several decades and write about it all the time: It involves making many difficult, painful decisions, and there are many pressures from above and below. But this hardly qualifies as management. It’s management without consequences, management without differentiating – in short, management without really managing.

This recent Towers Watson data especially surprised me, as this is an era when companies are constantly under financial pressure and relentlessly trimming costs “to do more with less.” So why would large numbers of organizations chronically waste money – figuratively throw money out the window by rewarding those who don’t deserve it?

If it were just a few loosely managed companies, I could understand. But nearly one-quarter of them?

If any readers have explanations, I’d be glad to hear them…

This article first appeared at Forbes.com.

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Follow Victor on Twitter for management-related news, tips and articles.

 

Victor Lipman recently retired from the corporate world after 25 years with one of America's largest life insurance companies. He writes about management from a psychological perspective.

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