A Much Better Way to Decide Your Bonus

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bonus schemeAnnoyed with how the review process works? A startup is shaking up the bonus world with its bonus scheme. Check out this story from Business Insider that explains how: 

I’m sure we’ve all worked at companies where the loudest guy gets the biggest bonus. In most companies, compensation is determined by a cabal of execs—guys that you may never have met—evaluating work that happened up to a whole year ago. Bonus compensation ends up being a function of politics, not performance.

51% of employees feel that the performance reviews upon which bonus compensation is based are inaccurate, according to a 2011 survey by Globoforce. A 2010 literature survey in Psychology Today concluded that 87% to 90% of employees hate performance reviews because the feedback is not useful, the whole process is stressful, and they’re left demotivated as a result.

Incredibly, despite widespread recognition of its failure, a recent Wall Street Journal article found that 99% of companies still go through the process of ritualized demotivation.

At Shopify, an e-commerce software startup that’s doubled to a 100-employee headcount in a year’s time, they’ve reinvented the process and turned bonus compensation on its head.  They distribute bonuses every month–not once a year—and that compensation is determined by peers, not by the management team on high.

Shopify crowdsources their company bonuses.

We spent a week with Shopify at their headquarters in Ottawa, Canada, after the company began using iDoneThis. We learned that their use of iDoneThis was a small part of a bigger philosophy—to put power in the hands of employees, the ones closest to the ground, to make consequential decisions, crowdsource business intelligence, and build their own unique company culture.

To crowdsource company bonuses, the Shopify team built their own internal system called Unicorn.  Here’s how it works.

When Serena does something awesome, Daniel gives her thanks by going into Unicorn, logging her accomplishment, and giving her one, two or three unicorns. Everyone in the company sees Serena’s plaudits and can pile on more unicorns if they agree that she did an awesome job.

At the end of month, every employee in Shopify gets allocated a proportion of the company’s profits that are set aside for Unicorn bonuses. Daniel’s allocation goes to Serena and anyone else to whom he’s given unicorns over the course of the month.  In other words, Serena’s bonus is determined by the gratitude of her peers for a job well done.

Whereas traditional bonus compensation schemes assume that management knows employee performance better than employees themselves, Shopify’s system seeks the wisdom of the crowd to determine who the top performers are.  The upshot is that Unicorn isn’t merely an administrative tool that doles out bonuses, it’s a business intelligence platform for employee performance.

It’s the difference between management hindsight on the one hand and data and genuine insight on the other. CEO Tobi Lutke told me that Unicorn discovered top performers among employees who might otherwise have been overshadowed by more charismatic colleagues.

Perhaps the most amazing fact of Unicorn is that Shopify has transformed the process of workplace feedback, performance evaluation and compensation from a source of fear and dread into a fun way to recognize a colleague’s good work.  The power of crowdsourcing is that it can take a back office function like traditional HR and put it into the hands of every person in the company.  The result is that Shopify’s culture of performance, gratitude, and quirkiness is baked into everyday life at the company.

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