Here’s how the familiar story unfolds…
Company A acquires/merges with Company B. Part of the logic driving the deal is that, in combining the two firms, headcount can be reduced. Accounting runs the numbers and promises annual payroll savings of, let’s say, $20 million.
But, of course, you can’t afford to let all those people go immediately. Some of them will be needed to help do the heavy lifting during the integration process. A few of the folks have critical skills…or they possess key information that has to be transferred to other employees who’ll remain. So, in order to keep the integration from going off the rails, you offer a big chunk of money to select people, the bonus to be paid only if they help out for a specified period of time.
Sounds practical. But research shows that stay bonuses can produce unintended consequences. You could be buying behavior you don’t want. In Drive: The Surprising Truth About What Motivates Us, Daniel Pink offers this conclusion: “Do rewards motivate people? Absolutely. They motivate people to get rewards.”
So-called “if-then” motivators (e.g., “If you stay and help with the integration for five months, then the company will give you a $20 thousand bonus.”) often reduce the depth of people’s thinking. These techniques tend to focus people only on what’s immediately before them rather that what’s off in the distance. This myopic attention to short-term gains—the bonus—doesn’t guarantee good decision making. Will your bonus recipients lose sight of the potential devastating long-term effects of their actions?
Pink goes on to list The Seven Deadly Flaws of using extrinsic motivators, the traditional “carrots and sticks”:
1. They can extinguish intrinsic motivation.
2. They can diminish performance.
3. They can crush creativity.
4. They can crowd out good behavior.
5. They can encourage cheating, shortcuts, and unethical behavior.
6. They can become addictive.
7. They can foster short-term thinking.
While stay bonuses motivate people to stay, they don't motivate them to excel.