Organizations that use “stay bonuses” as a retention tool could be making a huge mistake. Instead of letting poor performers go, they pay tons of money to keep them.
Here’s the issue: Those three axioms set many organizations up for a colossal form of organizational stupidity.
I hope by now you’ve figured out the monolithic flaw here. Please tell me you have. For the benefit of one of those leaders who happened to just give out a stay bonus, I’ll elaborate because I’m sure you’re confused: You just paid big bucks to hang onto managers who ran the business into the ground. Why on earth would you do that? That’s simply throwing good money after bad.
My suggestion: Look at the collapse of the business as a failure of leadership and, as I recommend doing when you make a hiring mistake, belly up to the bar and clean up your mess. Sure, it’s the harder road to travel. But don’t your associates, customers, and shareholders deserve better than managers (note I didn’t say leaders) who cratered a previously solid business?
Looking at things objectively, management and leadership have failed. They’ve failed to anticipate and prepare for problems. They’ve failed to steer the organization through choppy waters. And all too often, they’ve failed to take responsibility for their failures (once again invoking the Krusty the Clown defense, “Don’t blame me! I didn’t do it!”).
This is one case where, instead of stay bonuses, you should be investing in severance packages and hiring bonuses.
Yes. Stay bonuses. Wonderfully (and occasionally obscenely) large amounts of cash or stock are handed out to induce leaders in the organization to stay. And guess what happens? Of course those leaders stay around. The incentive is too large.
The stroke of genius strikes at that moment: The best way to prevent that brain drain from happening is at their fingertips: Stay bonuses all around!
Then it happens. Everything goes south. The economy craters. Spending tightens. Margins are pressured. But most important, leaders in the organization start making bad decisions (or no decisions at all, which is even worse). Some of them demonstrate gross negligence or incompetence. Earnings reports are full of more biff! and pow! than an old Batman episode.
The bigger problem is this phenomenon occurs at all levels, from directors to the board of directors. These “leaders” mistakenly interpret the above axioms as a mandate to pay even more money to the folks who got them in trouble in the first place.
At that point, they remember axioms 1–3 above and grow concerned that the problems in the business will lead to a “brain drain” of their talent. They read those axioms over and over, wondering what to do. They worry their “key talent” will seek “growth opportunities” elsewhere now that the company has melted down. It hits them hard when they think they can’t afford to lose their talent because it will cost more and make things worse. And, of course, they need to do something, anything, to demonstrate their commitment to people as the most important resource they have.
1. People are our most important resource.
2. It costs much more to hire someone new than it does to keep the associates you already have.
3. People are always searching for growth opportunities.
It’s been a rough year in the market. Let’s hit rewind and explore some underlying axioms about business. Sure, many of these are clichés (probably because so many folks have abused and perverted them that they often ring hollow), but they’ll set a context to explore this issue.
Imagine this situation if you will: You have a positive bull market going on and the economy is chugging along at a solid clip. Life is good. Earnings reports are full of butterflies and rainbows and puppy dogs and smiley faces (I love Frank Caliendo’s impression of Pacino), and no matter how hard management tries, it can’t seem to do anything other than turn a wonderful profit. Everyone’s as comfy as Fonzie on a motorcycle. In this scenario, it seems like every manager and executive in the organization is the next Jack Welch, given the performance they’re turning in.
Published March 6, 2024, on The thoughtLEADERS Brief on LinkedIn.