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In the past, I have been on projects with a bonus attached to it for completing the project successfully. The metrics for a successful project includes duration, effort, cost and impact. Ie, early delivery, or within budget or increase profit for the company etc.

This was with a previous company I was with. In my present company, there isn't such scheme. How is the subject best brought up with management? Obviously, it will have to be discussed for the team rather than on an individual basis.

I believe that the team will have to want this as well, otherwise it would be hard to tie it against a particular project. It would be better to tie to individual performance.

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First, be sure that you approach management on this subject in reference to future projects. Past projects -- or those you've just completed -- are just that, done, and there is no incentive for the company to compensate you for that.

However, you could use completed projects in negotiations for a raise, and having a track record of success could help you in negotiations. (See suggestions at the bottom.)

But no matter what, this is an example of how you should probably not approach this conversation. From How to Negotiate a Raise:

"The framework of the conversation shouldn't be, 'this is what I want; I want a raise,' it should be, 'I know what the company wants of me: x, y and z, and I've done it,' "

In terms of incentive pay, management sees this type of compensation as a way to motivate workers, despite that incentive pay may be considered harmful. Thus, you're more likely to have better success if you use a future project as an example or one that you're about to start.

You also can use the financials to negotiate on completion criteria for your project. For instance, if the bonus is to be paid quarterly, you could agree on X dollar amount for Y% of progress at the end of the quarter.

Here are some strategies for negotiating a raise that could also apply to asking for a bonus/incentive plan:

If you and your manager haven't already set specific performance goals that you can compare your work against, have a conversation to come up with goals for the coming year. Be explicit about the financial rewards associated with achieving those goals, whether it's a bonus for successful sales or a salary increase for a certain level of performance. Then, follow up at an agreed-upon time -- perhaps three months -- with a broader discussion about your career that includes the question of compensation.

However, the negotiation process shouldn't begin until your manager actually agrees that the bonus is a good idea and agrees to discuss this further. Finally, don't expect this to happen overnight. Financial decisions involving pay are sensitive issues, and an employer who commits to such a bonus structure may have a difficult time ending it if it turns out to not be in the organization's best interests. It's easy to raise an employees pay rate, but it's generally almost impossible to reduce it without creating a strained relationship.

  • "incentive pay may be considered harmful." says it all. We are engineers, we will find a way to game the system for our outcome. Bonus pay for early completion seems like a disaster waiting to happen. – Andrew T Finnell May 29 '12 at 22:36
  • @jmort253, thanks for the comprehensive answers. I also think for a successful negotiation, all the key measurements will need to be agreed upon and its definition to be drawn up by the team and the managers. The size of the bonus should also not be so large that focus of the project shifts onto the bonus rather than the successful delivery of the project. – tehnyit May 30 '12 at 9:31
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Know the Business

While I really like jmort253's take on negotiation, I think it's also crucial to back up and take a look at the big picture. A compensation incentive is only valuable if it induces a change in employee behavior. The obvious issue is - why should a company pay more for something that is already part of your job?

Next, the company will only pay more if the outcome is a change in behavior that causes a meaninful advantage to the organization. Early delivery of a given component is only meaninful - for example - if the user community who depends on that component can use it at that time. If there are 3 more parts to the release process, and those parts are not ready, then the early release was to no advantage.

In the end, the company does have to meet a bottom line. Incentives are particularly tricky, because they raise an expectation - when an incentive is removed, it's quite likely that the performance to the incentive will disappear as well. So a company is wise not to consider incentivizing a single project, lest the other projects suffer. And if the incentive process doesn't cause the expected improvement to the overall business, the company can be in real danger.

Before starting an incentive discussion, start asking these questions of the management around you that you trust to have a clue. Even asking the "why haven't we tried incentives?" is a really good question - since it's quite likely that your management has considered it.

Know How Decisions Get Made

There is a wide variation in how much control a technical manager may have over the financial aspects of teh business, and there's no perfect way to tell. In fact, in a perfect world, it should be somewhat seamless as lower level management should have bought into the incentive/pay structure and be ready to support it, regardless of how much control they may have had.

It's worth it to chat your way up the chain, while realizing that you may have to go up a few layers of management to get to someone who is empowered to actually change the rules. But the value of talking from your direct management up is that they can usually both help you streamline your delivery for the next level, answer some of your questions, and the discussion prevents them from being blindsided when their management says "why did this guy come buggng me about incentives?". No one likes feeling clueless (managers least of all) and so keep them in the loop.

In a healthy organization, it should be possible to question this status quo without a serious smackdown. Be ready to listen - your manager MAY have good reasons for telling you to give it up (for example, when your company is so in debt that they are considering a layoff... this is probably a bad time to go asking for incentive pay). But they shouldn't be blocking you just because thinking about incentives is hard, irrating, or "just not something we do here". The reason should make some level of business sense.

Expectation

In a large organization, or an organization that is clued in to both employee satisfaction and business growth, you can expect that someone in your management structure has done some thinking on this and MAY have a valid reason for saying "no".

A key element in negotiation is to hear and understand that reason before making a counterargument. And when you do counterargue, you need to make sure you address the concerns and have a reasonable answer from the other person's perspective.

Incentives can be tricky, because many of the things (especially in a knowledge working field such as software engineering) that might be incentive-worthy are also things that could be described in the job description - high quality, adherance to schedule & cost - even innovative thinking and improved efficiency are part of normal expectations in the software industry. For the most part, companies will want to target incentives to work that is "above and beyond" which means you have to sell this that way.

Also - be prepared to support all the what-ifs. A decent manager is going to have to ask around all the edge cases. What about people who aren't on the incentive? What if the target isn't met? At what point does incentivized behavior become a standard expectation? Are there partial incentives for partial success? What happens if it's a team incentive but only one guy on the team rises to the challenge?

If some of these what-ifs create outcomes that are unacceptably bad, be prepared that it might not go through.

Also be prepared that individual vs. team incentives may (or may not) be very different things... and individual incentives are often private enough that you may not be aware of them.

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Well I for one would rather have a pay raise than a bonus "Scheme". Management might like this idea because in the long run it is way to pay you less (a pay raise is forever, a bonus is once). Bonuses also are not figured into your eventual retirement income, so you are giving up a lot of potential income through your whole life by wanting to convert to a bonus structure. But if you wanted to convince managment, that could be an effective argument - that they would only have to pay more for extreme success (and not everyone would get one) and not guarantee the money all along. If they go to this idea though, don't be surprised to see annual pay raises dissappear.

One thing to be aware of is that it is far easier to get this into the budget for the next fiscal year, so time your request when they are starting to build the budget for next year.

  • +1 for bringing for contrasting between a pay rise and a bonus. However, I usually view that a pay rise deals with your over performance and contribution for the whole company, and a bonus usually deals with isolated items or tasks such as a specific project. – tehnyit Jun 6 '12 at 9:25
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If I were the business, I'd worry that such a system would create the wrong incentives. Finishing a project early or on time isn't a good thing if you make the wrong sacrifices to get there - for example, your team might be less concerned with accruing technical debt in order to maximize the bonus, or you might ignore looming problems in order to make sure you "complete" the project on budget.

The problems with this scheme seem similar to the problems with compensating CEO's or derivatives traders based on short term performance rather than long term impact.

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