Does a bonus culture do more harm than good?

The Olympics are over. Summer, if it ever started, is over. When the Monday morning alarm wakes you to another dank, gloomy day, what is that makes you get out of bed? Is it the challenge of working through intellectual problems? Is it the quality of the work and the clients? Is it the reward on offer for success? Or is it perhaps the hope of a significant cash bonus?

Staggering bonus payments made to bankers have been exciting the press. Most of the commentary has been couched in terms of such outrage that the heat surrounding the issue has obscured any attempt to discuss whether the bonus culture in banks works. As a profession, we also use bonuses as part of reward packages so, with the current interest in this subject, I want to ask whether a bonus culture works for law firms.

The economy looks set to remain flat, at best, for some time, which means that work will be hard to come by. In a lean period, the disparity between those who can find new work and deliver profitability and those who cannot is starker.

This encourages an environment in which people more readily expect their compensation to be aligned to their performance. If they find their compensation system wanting, then they are more likely to be tempted by another firm that offers them a more satisfactory compensation scheme.

In such conditions, managers are tempted to toy with bonus schemes, in the hope that they will create extra growth.

There is a bonus spectrum. At one ?end of that spectrum is ‘eat what you ?kill’. On that basis, the firm is driven ?entirely be individual earning capacity ?and each individual can only take home what he can justify that he has earned ?for the firm. The justification is usually on the very simple basis of bills rendered. Inevitably, such an environment is aggressive, highly competitive and can ?be destructive.

The opposite end of the spectrum represents a communal approach to earning, where everybody receives rewards, regardless of individual contribution. A key element of any compensation award must be that those eligible for such a reward perceive the process to be fair and transparent, rather than secretive and arbitrary.

In my view, absurd sums of cash motivate few professionals. We expect to get what we perceive to be a fair reward, not just in absolute terms but in comparison to our peers both within our practice and in comparable firms.

An aggressive bonus culture will not turn many of us into something different or turn the grinder into the finder. The way to do that is through training and the development of skills.

I would prefer a compensation system without any bonus element because of the problems that it can create. However, I recognise that, for many firms, the market now dictates that there must be bonus payments as part of a reward package.

So, if we must embrace the bonus culture, it is important that we do so by agreeing with people the setting of demanding (but realistic) objectives and rewarding them with bonuses when they achieve those aims. A well designed and implemented scheme can be used by management to motivate and retain talent.

The business can be damaged by a badly drawn or casual bonus arrangement. If people do not understand the basis on which bonus payments are made, if there is no clear explanation, then the scheme can easily cause resentment and good lawyers can become disillusioned and demotivated. A discretionary system is a blunt tool: very difficult to use effectively.

If you don’t know what you are being asked to do then you cannot know whether you have performed well.

Consider what we saw during the Olympics. Bolt, Farah and Simmonds had clear objectives and knew what their reward would be for hitting their targets. It worked for them, but can it work for us?

What do you think? Does a bonus culture do more harm than good?