What if all bonuses were paid on company performance and the order of payout was inversely correlated with the degree of influence over company performance - shareholders first and CEO last?
The Inverted Bonus System
I draw on the experience of UMass friend and alum, Balaji Krishnamurthy, the former CEO of Planar Systems of Beaverton, Oregon. Shortly after taking over Planar as CEO in 1999 Balaji crafted an unusual inverted bonus plan. Here is how the plan worked:
Planar needed to exceed tough operating income goals that benefit shareholders before rank-and-file workers receive quarterly or annual bonuses. Middle managers didn't get a dime until those junior employees pocketed their full target. Executives stood in line behind managers and received nothing until middle managers received their full target. Dr. Krishnamurthy received nothing in bonus until shareholders and all employees received 100% of their bonus.
"Pushing the Edge" of Your Thinking
- Is this a fair system?
- How would you react if you were a shareholder in this company?
- If you were a VP in this company?
- What behaviors does this system encourage and discourage?
- Under what conditions might you advocate for this reward system?
I welcome your comments.
Read Balaji's statement on the inverted bonus system success at Planar.
Read the WSJ story on the Planar's inverted bonus system.
Feel free to share this mailing with friends and colleagues.
Dr. Balaji Krishnamurthy has a PhD from UMass Amherst in Computer Science and distinguished career in the technology industry. Dr. Krishnamurthy has received global recognition for the innovative leadership concepts that he has put into practice. TIME magazine and CNN recognized Dr. Krishnamurthy as one of 25 Global Business Influentials. His leadership ideas have received recognition by the Wall Street Journal and other national publications.
Balaji's current company, Logistyle, offers corporations and boards training and tools for building leadership.
