Joel on Commissions

I generally like reading what Joel has to say. I respect that he is running a reasonably successful software shop and doing it in what he believes is the best way possible. Even though I often find my own version of the “best way possible” a little different, his writings are thoughtful and good fodder for further discussion. However, I have a bit of an issue with his latest article in Inc.

I agree wholeheartedly with the majority of this article. I have heard of Robert Austin’s work before, and agreed with it then. I have personally seen incentive programs fail for numerous reasons. No, it’s not the overall article I have a problem with. It is the very last paragraph. Joel spends the entire article building up a great case for not using traditional incentives because they can’t be set up to work and then, just when you expect a sage solution, completely backtracks and says in essence, “Forget all that. They will work if you set up the right rules.”

Huh? No they won’t. People often don’t even realize they are gaming the system. The problem is not that the right rules are not in place. The problem is that the right thing to encourage is the overall success of the company or (maybe) the project, not success in a single dimension or even of some set of “key performance indicators”.

First and foremost, do not give individuals bonuses at all if you can help it. For example, provide a team with a bonus based on working software delivered to production that has been bug-free for 30 days. If that won’t work for some reason, make sure the bonus is tied to long-term effects. Tie the sales bonuses/incentives to customers that are sold profitably and still happy and profitable 30, 60, or 90 days after delivery.

Frankly, better yet, just pay people a good salary and forget the bonus. Or, if it makes you feel better, go back to a Christmas bonus, but base it on the health of the company as a whole.

Tags: compensation, joel, Management, pitfalls