Performance9 min readPublished 29 August 2026

Your Bonus Scheme May Be Paying People to Damage the Business

People respond rationally to the measures attached to their pay. If the scheme rewards one number and ignores the consequences, the business should not be surprised when margin, cash, quality or customers suffer.

The new incentive scheme looks sensible on the spreadsheet. Sales receives a reward for revenue. Production receives a reward for output. Purchasing receives a reward for lower unit cost. Each department has a clear target and everyone knows what success means.

Then the unintended results arrive. Sales discounts to win volume. Production builds stock that nobody needs and delays maintenance to keep machines running. Purchasing buys too much material to secure a lower price. Every department hits its number while the company carries less margin, more cash pressure and more risk.

If people can maximise their bonus while weakening the business, the problem is not their motivation. The scheme was designed badly.

The Single-Metric Trap

A single metric creates focus, which is why it is attractive. It also encourages people to ignore everything outside that number. Revenue without margin invites discounting. Output without quality invites scrap and rework. Cost reduction without service invites shortages. Delivery without profitability invites overtime and premium freight.

None of this requires dishonest behaviour. People simply make the decisions the reward system tells them matter most. The scheme may speak more loudly than every message about teamwork, quality and customer care.

Common Ways Incentives Distort the Business

When One Number Wins And The Company Loses

Revenue creates unprofitable salesCommission on turnover encourages discounting, poor qualification and promises the operation must later rescue. Pay attention to contribution, commercial quality and cash, not only the signed order.

Output creates excess stockA production target can reward making items that are not required, creating work-in-progress and tying cash to a warehouse shelf. Output matters only when it supports real demand and good flow.

Unit cost creates supply riskA cheaper purchase can require larger quantities, weaker quality, longer lead times or more working capital. The lowest price is not always the lowest total cost to the business.

Uptime creates deferred maintenanceRewarding short-term availability without a maintenance guardrail can encourage the team to postpone essential work. This week's output is protected by borrowing reliability from next month.

Individual targets create silosWhen departments can win while their colleagues absorb the consequences, cooperation becomes optional. The scheme should encourage functions to improve the whole flow, not throw problems over the wall.

Start With the Outcome the Business Needs

Before choosing measures, define the result the business actually needs. It might be profitable growth, reliable delivery, better working-capital performance or improved operational stability. The role metric should contribute to that result without allowing damage elsewhere.

Keep the scheme understandable. A complex formula nobody can explain will not guide behaviour. Most roles need one primary outcome, a small number of guardrails and a company-level condition that protects the wider result.

The Balanced Incentive Framework

Reward The Result And Protect The Business

Choose the primary outcomeUse the result the role most directly influences: contribution from good sales, right-first-time output, delivery reliability or working-capital improvement. Avoid activity that can look busy without creating value.

Add quality guardrailsDefine the conditions that must remain healthy for the reward to apply, such as margin, rework, returns, complaints, safety, delivery or maintenance completion.

Add a cash guardrailConnect the reward to cash where appropriate. Orders that are cancelled, disputed or never collected should not create the same reward as profitable cash received.

Include a company resultMake part of the reward dependent on overall company performance. This encourages departments to consider how their decisions affect the rest of the system.

Stress-test the behaviourAsk what someone would do to maximise the payout. What might they discount, delay, overproduce or ignore? If the answer could damage the business, redesign the scheme before launch.

Do Not Change the Rules Carelessly

Incentive changes affect trust and may involve contractual or employment considerations. Explain why the scheme is changing, show how the measures work and obtain appropriate professional advice before altering existing arrangements. A sensible design can still fail if the process feels arbitrary or unfair.

Where practical, model the new scheme using recent performance. Show what different decisions would have produced. The best performers should be able to see a credible route to a worthwhile reward by creating better business outcomes, not by gaming a formula.

The Question To Ask

If everybody reaches the maximum payout, what happens to profit, cash, quality, customers, maintenance and the team? A good scheme improves the complete answer.

Your Action Checklist

.List every bonus and commission metric currently used in the business
.Identify the behaviour each measure encourages when someone tries to maximise it
.Replace activity or turnover measures with outcomes that protect contribution and cash
.Add clear quality, service and company-performance guardrails
.Model the proposed scheme and review it properly before changing existing arrangements

Final Thought

People pay attention to what the business rewards. If the incentive scheme contradicts the stated priorities, the scheme usually wins. Design it carefully, keep it clear and make sure success for the individual also means success for the company.

Your bonus scheme is a management instruction written in money. Make sure it is giving the instruction you actually intend.

Put This Into Practice

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