Management 3.0: Bonus money and peer to peer recognition

- Practices & Exercises

This is a summarized transcript of one of our most popular episodes, it also happens to be a team episode where we dive into what it means to take a different approach to paying bonuses and giving merit money!

In this episode, we delve into bonus money and peer to peer recognition. How that manifests, what that’s like, and with our team, it’s a very candid conversation. 

Introducing the players: Tahira, the finance queen, Ralph our CEO and Custodian of content. Nadine, our marketing brain & Sam podcast host.

It’s interesting because how we look at bonus money is something completely different than most companies do. I think it’s inspiring and can be interesting for all organizations to learn about it and to experiment with it to see how they can improve in their own company. 

Describe how we do it in our company

Ralph: Our salaries are a little bit lower than average, so we don’t pay that well and that’s okay. We do have more money for bonuses, we reserve 20% of the monthly profits for for that. So if you make more than a 5000 euro profit a month, we reserve 20% of that for a bonus and that’s quite high compared to other organizations.

I think what is different in our organization is how we divide the bonus. In traditional organizations it’s management or maybe HR or somebody else who decides on the bonus but we do it differently. We use merit money and we decide on our bonuses together using a tool, called Bonusly. With this tool we can give points to our team members. You can give points based on behavior, results or based on whatever you want.

For example last week I gave ten points to our colleague Nadine, because I think she’s driving some projects excellently. At the beginning of the month, you get 100 points and if you don’t use them they’ll be gone by the end of the month at which point you get topped up with new points. So every month you can give 100 points to team members. It’s 100% transparent. Everybody can see who gives points to whom, for what reasons, when and how much. Over time you collect points.

Dice

The other thing we do that’s quite special, is at the beginning of the month we roll a dice. Why? To decide if we’re going to pay out a bonus. We payout when we roll the number six. One of the things that we teach people at Management 3.0 is that you pay out rewards unexpectedly because if you know when you’re going to get a bonus, some people tend to change their behavior during that time of year. For example if bonuses are paid at the end of the year, like may companies do, you’ll find some people are a little bit more visible. They’re getting coffee or doing nice things for the manager, because bonuses are coming so they need to be visible.

In the case of Management 3.0, we don’t know when we’ll get paid out so we need to be visible all year round.

We payout bonuses when we roll a six and then we calculate how much bonus money we gathered over time. We divide it by the total number of points given to us by other team members and then it’s just a matter of counting your bonus money or your points, multiplying that by the bonus factor and then you get your bonus.

Is this a good way of working?

Tahira: I think it’s definitely a good way of working. We get into a more consistent performance and it’s not necessarily that it’s always for good work that we get points. It’s exciting to get points from each other for good work, but getting and giving points for bigger and smaller things, and complimenting each other for various reasons is also good. If it would have been a typical bonus scenario in an office, we could potentially not do anything exceptional for 10 months and then in the last two we do something.

With us, it’s so much to do with good work consistently, and then, we’re complementing each other, we’re acknowledging each other’s efforts and that makes a lot of difference.

I think the motivation levels are always high, and my excitement level is always high because I’m thinking maybe these points will be converted into bonuses this month or next. It’s always great for anyone acknowledging another’s work and appreciating efforts, at work or out of work. Anything that gets acknowledged by another person is exciting and that’s quite motivating for me. 

Sam: Nadine, what are your thoughts on this? You’re newer to the team. I don’t know if you’ve worked like this in other organizations you’ve worked on. So what have your thoughts been since experiencing it in the past couple months? 

Nadine: Yeah, so it’s awesome. My first time with merit money and I really like it. I have to admit in the beginning it was kind of hard for me because I’m someone who usually like to save money so I treated the bonus points the same way. At the end of the month, I had those points and I was like, oh my gosh, what will I do with them now? But during the last month I was, I’m running out of bonus points in the middle because I was just giving them away.

In addition to what Ralph said we can determine the bonus points ourselves. So if we give five or 10 or 15 or 20, it doesn’t matter. It just depends on how much we’re willing to give, we can also spend 100 at once, to one person, but no one will do this. So what I like in the system is the transparency. There are regular emails from Bonusly, so when I log in I can see who was giving, how many bonus points to whom and for what reason. And they are also connected to our team values. So whenever I give someone bonus points, I have to choose from our hashtag list of team values. I really like this very much. One nice story I just remembered, is that we sometimes forget to roll the dice, which usually happens during the Friday meeting on the first of the month. When we forget, there’s like a drama as in ‘oh no, we forgot to roll the dice.’ One time we even created another short meeting just to roll it.

Bonus Money

Is this bonus system unfair?

Sam: Something I want to point out with merit money is that I was mentioning it to someone who worked for a larger company, an ad agency, and I was really pushing the whole concept of merit money and her initial reaction was to push back and say: “No, no, no, no, that’s unfair.” She said people won’t be properly rewarded, they won’t be given the bonuses that they should be given. And so I think that’s interesting. I think some people are afraid of using the system because maybe they feel like they won’t be recognized, Maybe if they’re a little bit quieter so not everyone knows exactly what they’re doing they won’t get the points that they should be given.

Ralph: It’s a good one because that’s also the feedback that I always get. Hey, it’s not just a popularity contest and yes, it is. I mean you need to be visible, you need to show behavior that people respect and appreciate. And is that a bad thing? No.

That’s what you want to accomplish with bonuses. You want to use it to drive behavior and to have people on the team behave like you want them to in your company or organization.

The other thing, and I think that’s an example that we really have in our team, is that we have Chad.

Chad is our designer, illustrator. He makes great designs. All those great illustrations on the website are from Chad, and he’s in Canada. I don’t know how many hours time difference it is but it’s a lot. So he can’t attend any of our meetings because we’re mostly based in Europe and in India. So he’s not that visible but I think he gets points in Bonusly because the moments that he is physical, the moments that he does an extra step or an extra effort, we notice it. I mean, he always checks the tweets on Twitter, to see if there are any mistakes. I really appreciate it because he’s making an effort and for me, that’s worth an extra bonus. I think people who are less physical still get bonuses. Maybe a bit less, but on the other hand, I don’t know any perfect system. For us it works and I haven’t heard anyone complain about it so far.

Nadine: Yeah I liked that. Especially when you mentioned Chad. There other people on a lower commitment level who don’t work as much and aren’t as visible and they can still make it to the top of the list of top receivers. If we compare it to traditional bonus systems, I think in traditional bonus systems there are a lot more things which I don’t like. So yes, our system maybe isn’t perfect, but it’s better than any other system I know. 

Sam: Yeah. I think it’s a really good system. When I first joined the team, I wrote an article about it. I interviewed all of our people on the team at that time about how it affected them and I think one thing that came out was different things. People said it gave them the permission to kind of feel like they could be who they were. I think Ralph it connects with what you said about driving attitude and behavior. People weren’t giving points for necessarily good work done, they were giving points for how you were being, which I think ultimately probably feeds into creating a cohesive team that’s based on values.

What do you give points for?

Tahira:  I give it for good work. I give it for behavior also. For me what matters and how it is done, that again matters. So it’s not always that if someone does a lot of work and get points. Even if someone does a smaller amount or something in bits and pieces, but that “how factor” also matters to me a lot. That’s important for me. 

Ralph:  Yeah. I think I give points not often related to the individuals, but more about behavior and intention, and if you made an extra effort to do something. That’s something that I appreciate. If you show behavior, if you’re really a team member, then I give you points and sometimes I just give everybody points. If we have a retreat somewhere and we get home and hey guys, thank you all for having a great retreat hanging out. So that all the reasons for me to give points to people.

Nadine: We had this come up before. I mean it’s like when giving a Kudo Card, what are you giving a Kudo Card for? What is making you happy? And this is how I treat the bonus money. When I’m really happy with the discussion I’m having with someone on the team or enjoyed working with someone on anything, or something just makes me smile then I can give out bonus points. And the bonus points depend on how big the smile is as well.

What do you think is the biggest flaw to this system? 

Ralph: Good question. The biggest flaw for me is still then indeed the visibility. If you’re not really active on the team because for some reason, you’re on holiday or you have a low commitment level then you would get less points. But maybe that’s also fair because you’re less into the team because you’re on holiday or just one day a week. So could that be a flaw? I don’t know. Maybe that’s also just a result of your commitment to the team. And I think still if you’re working with a low commitment that month and you have a great impact you will get the points.

Sam: It sounds like potentially a bit of a gap. What do you think could fix or could change that? 

Ralph: Now and then we make changes and improvements. I mean with the dice, when we started with this system, we said okay, if you roll the dice, you get the bonus if we roll a six. But after 22 months of not having paid out a bonus. We got a bit impatient. So we decided to change the rules and in that case we said, okay, the first six months you’d payout when you roll a six, then from the seventh to the twelfth month, we pay out with a one or six, then at the thirteenth to the eighteenth month one, four, six, etc… So after, I don’t know, 32 months, we always pay out the bonus. So we do change the system, and we do improve it now and then. Just when we think it’s needed. 

Tahira: I think another challenge is when we have a lot of good work going on and people are giving points to each other and then we don’t make profit that month. We’ve had months where there’s so much work that happened, and then so many points given and some people had exceptionally high numbers of points, and we didn’t quite make profit those months and we didn’t have bonuses. So that can be demotivating.

Nadine: That’s super interesting for me because for me, actually, the bonus points are already enough. Maybe because I don’t think about the money, that is connected to it.

Rewards and Incentives

Tahira: That thinking is great, but at the same time eventually, these bonus points lead to money, right? They get transformed into money and that’s what would come up whenever we hit that good six. So it should be like the points should actually transform into money. That’s the overall purpose, that we are rewarding people both in terms of points and in terms of money. So if in our minds points are getting transformed into money, then it can be disheartening temporarily for some of us.

Ralph: But I mean that’s also the cool part of this. It’s intrinsic and extrinsic motivation. I mean the fact that you get rewarded, that you give points, that’s motivating and also important for me. When the bonus is paid out, and I can buy some nice stuff, and I have some extra money. So it’s both. And I think that’s also a part of this system, both those intrinsic and extrinsic motivators. 

How does this system affect your motivation potentially more than a different one? 

Ralph: For me, the biggest change is the fairness level.

Fairness is very important and I think this system is much more fair than any other system that I’ve worked with because in other systems the management decided on bonuses.

Why would management decide alone and what knowledge does he/she have? Is he/she all-knowing? This system is much more fair. That’s what really motivates me and that’s why I really appreciate it. If I did something great and nobody recognizes it then maybe it wasn’t that great. Maybe it was just something that people expected from me.

Nadine: It’s so funny that you just mentioned that because sometimes when I do something, and then there’s no bonus points given, I think, okay. Okay. So I thought it was great, but maybe no one else saw it that way. This is also then about the behavior again. Just because I think it’s great and no one else does, then maybe there’s been something wrong in terms of my self-recognition.

Clock thumbs up

Tahira: And this is another thing, the twist is for example: If you do something exceptional, and I think, oh, she did it so promptly I should give many bonus points to her. And then I said, okay, I’ll give her bonus points. It’s in my agenda to give you bonus points, so I’m piling up that appreciation or piling up the acknowledgment for the last week. This is not really good, but it can happen, and it can happen most of the time when people do it. I think sometimes people become too occupied and things pile up. It’s fair and it’s unfair, but it happens.

Nadine: I think the system is fair enough, just to emphasize that again because if you don’t directly give bonus points or say thank you for me, it’s kind of the same, then it was not important for the other person, which is okay. I mean, we all are here to learn and Bonusly is another method to do that. So for me, it’s all good. 

Sam: I think it helps you understand your colleagues in terms of what is important to them. But I think we should also be cautious, just because someone does something and they don’t get a bonus point, I don’t think it means people don’t care. And I don’t think it means that it wasn’t important. Maybe someone forgot or maybe you thought, ‘oh well I’ve given them points for other things recently, I don’t need to get points for that.’ I don’t think we should conflate not giving bonus points with not caring or thinking it’s not worthwhile, but I think that, at least for me, when I’ve gotten points for certain things that sort of surprised me, I said, ‘Okay well, I guess that that’s important to someone,’ and it actually makes me want to do it more. I make a note of it.

Oh, okay. If that meant if that person appreciated that, then I’ll make an extra effort to do more of it.

Nadine: And it’s pretty cool. This is what I mean it’s just changing our behavior as well because it’s not like changing for others, but it’s like, okay, someone liked it and he’s appreciating that. So yeah, maybe this is something I can work on to do it more often. 

Is it possible to game the system?

Ralph: I don’t game the system and I got the same question also from people. ‘Hey, but if I gave 50 points to Nadine, then she can give 50 points back to me and then hey, we both got 50 points. 

I say that it doesn’t happen and as I said in the beginning when I explained the system, it’s 100% transparent. That’s so important if you do implement this kind of system it has to be visible to everyone and if your team is mature enough, they will ask questions about it. ‘Hey, guys, what are you doing there?’ That’s not fair. That’s the reason that it should be transparent, that you can check on each other in case it doesn’t work, and even if that would happen, I think you’ve got a serious problem in your organization and you have something to fix. That’s not about owners it’s something about basic behavior. 

Sam: But is that the only way to game the system? Are there other ways that you could game the system? 

Ralph: I don’t know. Let’s be creative.

Sam: One thing I think of is you do things, and maybe this isn’t a bad thing, you do things for the sake of bonus points. Maybe you’re not doing them because it’s from a genuine place. You’re doing it because you want points. Is that gaming the system?

Nadine: This is what I thought when you were mentioning gaming the system that it’s about this. And then when Ralph said this, I saw it with another angle, but initially, I mean, is it a bad thing if I do things that others would appreciate? I think no one is doing that because we all have a lot of work and it’s not our main focus to work for bonus points. But on the other hand, it’s nice to do something nice for others. 

Sam: Yeah, exactly. That’s the thing. It’s sort of like, does it really matter? I guess the only thing is:

If you would take the bonus points off, would you still be doing those things? Are you being nice to someone because you might get points for it, but if there were no points on the table, you wouldn’t reach out to them. But again, maybe, the final result is all that matters is that you’re reaching out. 

What advice would you give to help people start shifting their bonus system to something more along the lines of this?

Ralph: Step by step. Start introducing just the points, not the money. Disconnect from money in the beginning and start introducing the points. Start small and introduce it as an experiment. As something we’re going to learn. If it doesn’t work, we’ll just stop the experiment. Another tip is that you can also connect it to Kudo Cards just to make it a bit more manageable you can give anyone a Kudo Card. So maybe my first tip is to start introducing this.

Nadine: You don’t have to roll it out for the whole company. You can start in one team and just experiment there and see how it’s going and whether you like it. If you’re a team leader of one team, you don’t have to wait for others to join. You can just try it with your own team. 

Tahira: Yeah, I don’t think it’s necessarily to always monitor gain. Give points, give Kudo Cards, give those words of appreciation to each other, those acknowledgments. Transparency matters, I think. With the intention of being transparent and fair, keeping the process fair, they start off and then they can keep customizing as per the team requirements. There’s no fixed rule on how it is to be done. Whatever suits the team best. But I think the important part is they should start doing this. 

Ralph: 

One tip for the managers and leaders:
It’s not up to you to decide who gets the bonus. You need to accept and you need to trust people that they will give points to people because they care about it. Maybe you would’ve done it differently, but hey, it’s up to them. They decide if they think something’s important, if some behavior or results are important. If they think it is, then just trust them that they did a good thing. 


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