Fred Schindler
IMAGE LICENSED BY INGRAM PUBLISHING
I worked in an organization that had just finished a high-profile project. We had been challenged to develop a chipset for a new customer on an accelerated schedule. We hadn’t quite met all the milestones or specifications, but we were close. Overall, we were quite successful. Most importantly, the customer was pleased. I led one of the product development teams. At the start of the project, our general manager provided additional motivation. He suggested there would be cash rewards if we were successful. Once we had finished, a bonus budget was approved. That left us with the task of deciding how the rewards should be allocated.
There were dozens of employees that had worked directly on the project. We could have decided to give each of them an equal amount. But some had made greater contributions, some had faced greater challenges, and some had been more successful. Would it be fair to reward them equally? In addition, there were many employees who weren’t directly part of the project but had made valuable contributions. Should none of them be rewarded?
In the end, it was decided that we would have variable bonuses, with the largest amounts going to the most deserving, and everyone who made a meaningful contribution receiving some. That’s a fair approach. Then, it came down to deciding how much each contributor deserved. Each of the team leaders ranked their team members. Then, it was up to a set of managers to merge the lists. That left it to the passion and persuasiveness of each manager to advocate for their employees. Was it a fair process? I was able to review the final list, and while it largely rewarded those that were most deserving, I didn’t fully agree with it. Managers, of course, received the largest bonuses. Team leaders were also well rewarded, so at least they got that right!
There are lots of types of rewards: cash bonuses, stock grants and stock options, extra time off, gifts of experiences or material things, even the ability to attend the IEEE Microwave Theory and Technology Society International Microwave Symposium. But no matter what the reward, there remains the challenge of determining who gets what. There is no perfect method for allocating employee rewards. The case in the preceding is just one of many examples of flawed approaches.
Ideally, we would be able to use metrics to determine rewards, but what to measure? If we are measuring engineering work, how do we evaluate it? We could base it on how quickly a project is completed. But some projects are more challenging than others. How do we compensate for that? Estimating nominal project duration is subjective. If we are being subjective, instead of subjectively creating a metric, let’s be direct and subjectively determine the amount of the reward instead. If we want to have duration as a metric, we can’t just ask each employee how long their project will take—that would just result in long estimates. The employee and manager could negotiate the target project length. But then, why not just directly negotiate the reward instead?
Another approach might be to use the success of a product to drive the size of a reward: the more profitable the product, the greater the reward. But here again we have the challenge of determining who made the greatest contributions to the success of each product. (The managers, of course.) We also have an issue with time lag. An engineer might design a product, but sales won’t be immediate. They may not come until years later. It would still be a nice reward but perhaps too decoupled from when the work was done. And what happens if the employee has left? Few organizations are keen to send money to former employees. Employers might like the incentive for employees to stay put, but what if there is a downturn and a staffing reduction?
If we reward employees based on their individual performance, or teams of employees based on a team’s performance, are we setting up an unhealthy competition? There would be no incentive to collaborate across teams. If everyone is going after the same pool of bonus money, there might even be an incentive to undermine the work of other teams. I once managed an organization that had devolved into factions that were antagonistic with one another. I floated the idea of having each team’s rewards based on the success of the other teams. It was a nice idea but an impractical one.
I was a manager in another company that had a bonus program based on overall company performance. Company goals, such as profitability, were stipulated in advance. Then, there was an equation to determine the actual bonus relative to a target. It removed subjectivity but simultaneously diluted individual incentive. It had us all working toward the same objective and dependent on one another’s contributions, both good things. But our individual impact on determining our rewards was limited. The plan also featured targets as a percentage of each person’s baseline salary. The percentage of salary increased the higher in the organization each employee was. Needless to say, managers did well, so I liked the plan.
Many companies, including most where I’ve worked, offered grants of stock or stock options. There are similar variations in how these rewards are allocated. Such equity rewards tend to be delayed: the employee needs to wait before being able to cash them out, often for years. That creates a good complement to the immediacy of a cash bonus. Equity-based rewards provide an incentive to stay with a company and to motivate employees to work for the long-term health of the company.
As I already mentioned, there are lots of different types of rewards. I think that the ultimate reward is that of a job done well. Self-satisfaction is a great thing. But a little something extra in your bank account doesn’t hurt, especially if it’s done fairly. But, if employees feel that a program isn’t equitable, it can undercut the benefits of the rewards themselves.
Digital Object Identifier 10.1109/MMM.2023.3277359