Over the past few months, Reputation.com CEO Michael Fertik has become a regular contributor to the Harvard Business Review. In recent posts for HBR, Fertik has offered practical entrepreneur-focused tips on starting a company and managing older and experienced professionals. He has also talked about the industriousness (and inefficiency) of Chinese business.
In his most recent piece for the Harvard Business Review, Michael Fertik talks about performance-based cash bonuses and how they are not the best form of compensation for loss-making start-up companies. Check out an excerpt of the article below.
Bonuses, particularly performance bonuses, negotiated up-front, are standard and reasonable fare in established businesses. Some smart people think they’re a good idea in start-ups, too. The basic argument is the same for start-ups as it is for other companies: incentives focus and motivate managers and individual contributors alike; tying compensation to goals stimulates performance. It’s not a crazy notion in the abstract, even though some research shows that cash rewards can actually diminish performance in cognitive tasks. I’m all for profit-sharing, but only when there’s a handsome-enough profit to share. Until your company is generating a bonanza, you shouldn’t consider doing anything other than reinvesting the cream in your growth. And I think cash bonuses are a particularly bad idea when your start-up is losing money.
Check out the full article online at the Harvard Business Review.
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