Peter Martin tweets a reference to this blog post outlining Dan Pink’s well documented argument that bonuses might be good for productivity for simple tasks, and that they’re at best a double edged sword for complex tasks, where intrinsic motivation is more important, and bonuses can either reinforce or undermine intrinsic motivation, depending on a bunch of circumstances that (I suspect) are pretty context dependent and are not particularly well understood.
I’ve always wondered whether the success of the industry fund sector – which is not profit driven or perhaps I should say much less profit driven than the commercial fund sector – is a piece of quite strong evidence to this effect. I’m not that close to it, but my strong impression is that the industry funds have been more innovative with their investment strategy and generally speaking, intelligently innovative. They’ve been smart in diversifying into non-traditional assets and of course they’ve not charged the fees that the others charge – while generating as good or better performance.
In my experience, the granting of bonuses is simply an exercise in sophistry and nepotism
Absence of bonuses in the industry sector is certainly highly correlated with intrinsic motivation but it may be an effect rather than a cause. The industry fund movement was a child of the trade unions; the commercial sector was a child of Wall Street. The two cultures are completely different. I think if an industry fund executive ever asked for a $9 million retirement payout like Geoff Dixon got, he’d be more likely to receive a knuckle sandwich.
Garry Weaven has been one of the key players in the industry sector:
As counter-evidence as to whether absence of bonuses encouraged innovation and success, consider the life insurance industry in the days when it was essentially all driven by non-profit mutual societies. A sleepier bunch of institutions you could never hope to find.
On the third hand, consider the state banks. As they were deregulated in the 1980s and remuneration ceased to be tied to government salary scales, they got adventurous, started taking risks and, many of them, came to grief as a consequence.
APRA has just reported on the performance of Australia;s top 200 superannuation funds. You can’t tell me that there aren’t economies of scale to be gained from having one larger fund, like Temansek in Singapore that can provide investment funds to built infrastructure, hopefully without the nepotistic current head of Temansek.
I am reminded that when times get tough the ANZ bank retains those employees that make their bonuses irrespective of whether the investment bellied up in the recession.
Can we stop calling [life insurance|annuity] commission salesmen names like financial advisor.