Is It Time For A Peer-Reviewed Bonus System?

This is the dilemma predicted by equity theory, which asserts that individuals often compare their inputs (work) and outputs (compensation or benefits) to the inputs and outputs of those around them. If their perception is that the system is fair, everything works smoothly. However, if their perception is that the system is unfair, a motivational disaster can result. Recently, however, a small group of companies have begun experimenting with a way to counter-act the potential negative effects of equity theory by handing over the responsibility for bonuses to everyone in the organization.

The odd-jobs start-up, Coffee & Power, distributed each of its 15 employees 1,200 stock options at the beginning of 2012 and encouraged them to distribute them among co-workers in whatever ways they saw fit. An employee could give all her options to one co-worker, or divide it among a group of co-workers they believe really hustled. “It lets me reward people that management may not always recognize,” employee Becky Neil told the Wall Street Journal. “This person who has a big title—maybe he didn’t actually contribute that much.”

India-based HCL Technologies created a similar system, but removed the monetary compensation element from its program. Instead, employees are issued a virtual currency to allocate among their co-workers. Each employees allocation is then tied to a performance appraisal and recognition program that rewards top performers, but doesn’t lead directly to changes in salary of bonuses. Overtime, however, HCL’s system sheds light on who employees believe are the real linchpins of the company and allows HCL’s management to make the needed equity adjustments.

While both companies may have opened up the door to such systems becoming a popularity contest, the idea of distributing bonus power to all employees is a innovative idea for counter-acting our tendency to assess our work and compare it with others. It removes some of the potential dissatisfaction predicted by equity theory while rewarding the very activity most companies seek to encourage: teamwork.