Give Bonuses Upfront?

What would happen if bonuses were paid upfront?

Almost every company pays out bonuses AFTER targets are hit.

But why don’t companies pay bonuses BEFORE and withdraw the money if targets are missed?

I accept that it could be a logistical challenge, but the potential benefits are huge.

On page 71 of The Influential Mind, Tali Sharot¹ shares an eye-opening study.

One group of teachers were given $4,000 and told that the money would be taken away if their students' grades did not improve.

Another group of teachers (the control) were promised $4,000 if their students' grades improved.

Teachers who were paid their bonuses upfront performed better.

Their students got higher grades, not just in one specific class but across general intelligence tests.

This is due to loss aversion.

The motivational fear of losing $4,000 is greater than the motivation to gain $4,000.

Despite the financial rewards staying the same, a loss is more motivating than an equivalent gain.

So, I think bonuses should be paid upfront.

Sure, some companies will lose the cash to employees who quit immediately.

But, ultimately, they’ll gain more and perform better.

What do you think? — Phill

¹Sharot, T. (2017). The influential mind: What the brain reveals about our power to change others. Henry Holt and Company.

As a behavioural science practitioner, I believe in the peak-end rule*

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