Compensation as Reward and Incentive

If one can “get fired” for poor performance, one must also be able to “get rich”, for extraordinary performance. Rewards should be directly tied in with the objectives set for the manager’s job. It is misdirection of the worst kind to tell managers that they have to balance objectives so as to preserve the long term earning power of the business while basing on their immediate short range profits.

Such misdirection occurred a few years back in a big pharmaceutical company. Management had emphasized that it wanted its senior chemists to work on basic research rather than on immediately saleable products. One year one of the senior men came up with a discovery of major importance to the whole field of organic chemistry. But the discovery required many years of hard work before it could be turned into commercial products. And when the annual bonus was distributed, the chemist received just about the same sum he had gotten the year before. The big bonus went to a man who had made a large number of small and fairly easy but immediately saleable improvements in existing products. Management thought its behavior completely rational. The major discovery had contributed nothing to yearly profits; and the bonus was clearly based on yearly profits. But the man involved felt that management had convicted itself of dishonesty and double-dealing. He quit; and so did four or five of his colleagues – all the best chemists the company had. It still has difficulty recruiting first rate research men.

Moreover, the salary system should never be so rigid as to exclude special rewards for “performance over and above the call of duty.”

In one company a member of the engineering department , who himself never climbed beyond the bottom rungs on the promotion ladder, trained for many years all the young engineers that entered the company’s employment including four successive chief engineers. Everybody in the department knew what he was doing. Yet the value of his contribution was not recognized until he retired. Then the company had to hire a training director and two assistants to fill the gap. To the honor of the company, let it be said tat it then made good its oversight trough a substantial post-retirement gift to the old man.

Financial rewards must not be bribes; they must not create the atmosphere in which executives can neither quit nor be fired. This raises serious doubts regarding the various schemes for delayed compensation that, for tax reasons have lately become so popular in American business.

One example of their effect is that of the executive who for several years had been thinking to leave his company where his considerable qualities and aptitudes are not fully utilized. The man has several attractive offers, but in every case he has turned the offer down at the last moment for the simple reason that he has a stake of $50,000 to $75,000 in delayed bonus with the company which he will only receive if he stays the next five years. As a result he is still in his old job but frustrated, bitter, torn in two directions and a source of discontent and dissatisfaction throughout an entire management group.

Contributions of this kind should always be rewarded while they are being made. They may yield no directly measurable business results. But they build spirit and performance. They are rightly valued highly by the people in the organization who are apt to consider it a serious injustice if management fails to recognize and reward them. It is the willingness of people to give of themselves over and above the demands of the job that distinguish the great from the merely adequate in the organization. Any organization that has such a maker of men in its employ should count itself lucky and forget that salary limit for his job range is set at $8,500. The reward for such contributions should be rare like the Congressional Medal of Honor or the Victoria Cross. But it should also be as conspicuous and as great.