Product Performance Based Bonuses
Product Performance Based Bonuses are financial incentives awarded to employees based on the performance and success metrics of the product they work on. This system aligns individual rewards with the product's success in the market.
Goal
The goal is to incentivise high performance and align individual contributions with the company's objectives, thereby fostering a culture of ownership and accountability towards the product's success.
Context
Individual bonuses have been documented to be a net negative for productivity because the positive performance boost of receiving a bonus is more than offset by the lower productivity of the people who did not receive the bonus. This stems from the fact that products are built by teams and not individuals.
However, when bonuses are tied to team performance, they can be a powerful tool for aligning individual efforts with the product's success. It also removes the anti-pattern of people cherry-picking work, hoarding knowledge or not sharing information because they are worried that someone else will get the bonus.
Bonus Alignment
| Alignment Level | Description | Challenges |
|---|---|---|
| Stream Performance | This is the area that the individuals have most control over so it would appear to be the most fair. | A product is the sum of all of the streams that contribute to it. At times some streams may need to stop working on their core outcomes to help other streams. If we set up the bonus system to reward stream performance, we may inadvertently create a situation where streams are not willing to help each other. |
| Product Performance | By incentivising the success of the product as a whole we can encourage people to work together to achieve the best outcome for the product. | The individuals in each Stream have limited control over the strategic direction of the product. To counter the potential for people to feel that they are not in control of their own destiny, we need to a way for Streams to provide input into the product strategy. |
| Ecosystem Performance | Similar to how Streams may need to put the needs of other Streams above their own for the benefit of the product, the product may need to put the needs of the ecosystem above its own. An example is where Apple used the marketing budget of the iMac to promote the iPod. The entire ecosystem benefitted from the iPod's success. | The individuals in the Streams and Products may feel that they are not in control of their own destiny. Strong communication and transparency are needed to ensure that everyone understands the strategy and how they can contribute to it. |
Inputs
| Artifact | Description |
|---|---|
| OKRs | Objectives and key results set by the Product Team and the Ecosystem Team. |
Outputs
| Artifact | Description | Benefits |
|---|---|---|
| Bonus Payouts | Financial rewards distributed to team members. | Motivates and rewards employees, aligns efforts with product success. |
Anti-patterns
- Misaligned Metrics: Utilising metrics that do not accurately reflect meaningful product success or team contribution.
- Overemphasis on Short-term Gains: Encouraging behaviours that boost short-term performance at the expense of long-term health and growth of the product.