Are bonuses bad for you?
You'd think there was something evil about bonuses, or at least mildly morally degrading. Investment bankers, quango mandarins and hospital consultants all get trashed for having their snouts in the bonus trough.
Admittedly, much of the coverage comes from just how big the bonus pot is. And there can be a lack of transparency about how bonuses are awarded.
But the popular media image of a bonus is that it's a guaranteed top-up to pay, handed out by executive cronies irrespective of results and performance.
It's possible this is coloured by journalists' prejudices or envy.
Very few journalists, below executive levels, are incentivised by bonuses, or if they are, it's for a small proportion of pay. So they are happy to spread the impression that anyone eligible for a bonus is on some sort of gravy train.
Is that true? I've been looking in more detail at what bonuses - and their close relative, performance-related pay - can do for a company and for employee productivity.
The answers can be heard on Radio Scotland's Business Scotland
programme, being broadcast at 10.00 GMT on Sunday 20 February, and also available by iPlayer and podcast.
To offer a taster, there's some fascinating evidence in there from two business school academics.
Professor Brian Main of Edinburgh University business school told me about top executive pay, having researched it extensively.
He points out that companies have the bad habit of making it appear that bonuses are awarded for poor performance, when in fact, the bonus is typically paid for a performance over a different and longer time-frame than the annual report in which it appears.
He says the growth of the bonus owes much to institutional investors over the past 20 years or so, when they sought to tie in executive directors' pay to shareholders' interests.
And although there's some evidence that activist shareholders are cracking down on over-generous remuneration (or what some annual report writers like to call 'emoluments'), the Prof says the success of such endeavours at AGMs has been strikingly rare.
He observes that rewarding senior executives generously is seen as essential to company success. A happy executive is one who feels she or he is being rewarded at least in line with the market rate, and if you value your senior executives, why wouldn't you throw a hundred thousand or two at them to lighten the load?
It seems quite a lot of top-up for most of us, but it's a relatively small cost for the right leadership team.
The catch is that, if all companies take the same approach, there's a powerful upward ratcheting effect.
There are lessons being applied in some quarters from continental companies which use bonus targets other than finance, such as staff satisfaction, carbon emission reduction and corporate social responsibility. Those may have some way to go yet.
Pay enough or not at all
I also heard from an expert in performance-related pay for those working at grunt level in the private sector. Konstantinos Pouliakas is a labour economist at Aberdeen University business school, and offered many insights into what works - and crucially, what doesn't.
In short, performance-related pay (PRP) works, but it has to be carefully designed. It works best for sales forces, where targets are easily understood.
It works least well, or not at all, for public sector workers. For many of them, the satisfaction is in doing the job as much as making money out of it, and performance is often qualitative more than quantitative, and in teams at least as much as by individuals.
Where PRP can work in a private sector context is where employers offer more than 10% of total pay. Anything less than that can be demotivating, and can be seen as insulting. It's better to pay nothing at all than less than a tenth.
While it's been seen as an essential form of incentivising workforces in the past decade or two, that trend is now changing towards a mix of PRP with employee empowerment - motivating by handing down autonomy.
Dr Pouliakas says the research shows PRP pushes up the average working week by about two hours, and can be associated with unhealthy presenteeism. Keen to ensure they don't lose their entitlement, workers can feel the pressure to get back from ill-health earlier than they should, and that can have negative consequences on long-term health.
Another fine mess?
There is, of course, one other vital factor driving the bonus business - it allows cost flexibility where revenue is unpredictable. If cash flow's in trouble, it's a whole lot easier to cut the bonus pot than to cut basic pay.
Rather more problematic is the trend towards unconsolidated pay - a one-off top-up, which doesn't form the basis for the next year's pay settlement/negotiations. Nor does it have to be pensionable. So you can see why some employers rather like that option.
Finally, an observation picked up from Chris Dillow, columnist with Investors Chronicle and economics blogger. He pointed me to a psychology lab research project at Nottingham University that tested how people's actions are shaped by rewards being given either through flat rate pay, bonuses or being fined.
The outcome challenges the whole notion of performance-related pay - the best results came from imposing fines or penalties when people fail to hit targets.
That may merely reflect human nature: we work harder to avoid losing something we think we've already secured than we do to gain something extra.