Organizational Diagnostics

Linking Survey Results to Executive Bonuses

by Kelly R. Massey, Ph.D.

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Organizations often consider basing executive compensations or bonuses partially on positive or improved employee survey results.  The intention is intuitively sound: use the incentive of bonuses to direct executive attention to improving the effectiveness of their organization.  For example, bonuses may be attached to achieving an "8 out of 10" on a survey item or achieving an improvement of one scale point in a repeated survey administration.

Our experience suggests such a strategy is unwise, despite its intuitive appeal.  The problems with attaching bonuses to survey results derive from MANY sources.

The typical focus on raising lower scores may give naive direction to executive effort.

Not every low score is automatically significant.  Our corporate research commonly finds (through more advanced data analysis) that some mid-level scores are actually more worthy of effort because of their stronger impact on key outcome measures.  If the data analysis has included only the basic descriptive statistics (mean, variance, etc.), then the really important survey scores are often ignored in favor of the lowest scores, and executives waste time improving scores that have no linkage to important outcomes.

Employee opinions are partly due to factors beyond the influence of their executive.

Not everything that determines the respondents' typical response is within the influence of an executive.  For example, a poorly stated or communicated vision often undermines employee confidence and efficiency.  Inefficient work flows resulting from poorly designed work systems across multiple departments are another problem for which a single executive is not accountable.  Poor market acceptance of a product will also depress employee scores.  Penalizing executives for their inability to increase such scores can be demoralizing and frustrating.  Attempts to improve issues can actually lower survey scores because those efforts can increase expectations or sharpen understanding.

Programs such as training in meeting facilitation or team building can be consciousness-raising, encouraging employees to think about things in new ways.

Under these conditions, lower survey ratings from one year to the next may reflect employees' new and more demanding expectations or enlightened understanding; actual conditions may have improved despite the lowered scores!

Shifts in market conditions, product life cycles, work force variables, or even the general economy can make scores in one time period  incomparable to scores in another time period.

Just because an executive's division has a score of 5 out of 7 on morale does not imply that six months later they should be able to achieve 5.5 out of 7.  Competitors' new product launches, an influx of younger, more demanding employees, or the emergence of a new technology may have dampened morale despite successful efforts to raise it.  Scores across time periods should only be compared if they come from essentially the same population of raters and those raters are facing essentially the same situation; those conditions are seldom met in a fast-paced business.

Employee turnover or major reorganizations may create a substantially different survey population (and thus different scores) with no genuine change in organizational conditions.

New hires may come from a younger segments of the workforce.  Down sizings may leave only the more senior employees.  Outsourcing may remove entire segments of a population.  Either type of change means a different respondent base, resulting in possibly different scores.  Such changes in scores would have no bearing on the performance of an executive whose bonus is affected.

Finally, linking bonuses to survey results impacts the effectiveness of the survey process itself.

Attaching employee opinion to bonuses may undermine executive buy-in to the survey and erode confidence that survey results will be used to improve the company.  Executives may become defensive in response to survey data, deflecting attention from exploring what the data really means.  Employees, also, may want to give constructive feedback, but temper their comments so as not to hurt their boss financially.

The strongest use of employee survey data is informing the development of more effective and efficient operations, better quality of service, and improved work relations between employees and between work groups.  Serving that function well typically requires that employee survey data not be used in bonus plans.

We do see, however, ONE valid use for employee survey data in the distribution of executive bonuses:

Bonuses can be contingent on the development and implementation of strategies to improve operations, quality of service, and work relations between employees.

Survey data, for example, might suggest problems in the customer complaint response process, or that career development is sadly lacking.  Executives might have part of their bonus contingent on developing and implementing a plan to improve customer complaint response time, or institute meaningful career development.  Such improvements should have their own built-in metrics for successful operation, far more precise than the data gathered through the typical employee survey.

The actual feedback data can even be confidential to the executive or manager being evaluated, since only their plan for improvement needs to be surfaced in discussions with their superior.  This greatly increases the chances that they will use the data as it was intended:  as a catalyst for improvement efforts.