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Comment by Shenglong | Hacker News Reader

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.

Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lower bonuses to another. Giving everyone the same bonus discourages high performers from staying (and also working on the same team). People who receive little to no bonuses take the hint to leave, just as if they had received a 4 or a 5. Considering only 10% of employees receive a 4, and 5% receive a 5, I'm thinking that effectively, there has been no change.

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Not necessarily.

If two people are both performing at about the same level, they can get the exact same bonus. In a ranked system one employee must get more than the other, even though their actual output is pretty close to identical.

Not to mention when you make the ratings tied to rewards, as opposed to punishments, you're removing a lot of politics. Stack ranking discourages high performers from working together, as their performance rating is penalized by their proximity to smart people. Because stack ranking is inherently punitive, this also makes these employees less mobile. So not only are you stuck in a team full of super-ninjas who make you look bad, but the stack rank you got makes you toxic when it comes to internal transfers.

A fixed bonus pool won't fix the "everyone near me is too smart" problem, but it at least would give people a way out to another team. An otherwise good employee who rolled the dice wrong when picking teams does not gain a permanent black mark for it.

It also opens the possibility of giving a team of all rockstars, if they're (as a team) performing highly, a bigger reward pool that can be split evenly between them.

I seem to think it's much easier to convince them your awesome team producing awesome products (and taking in awesome money) should get extra money to spend than it is to convince people you shouldn't have to rank any of your employees lowly when they all have to.

I honestly don't even get why reward pools are such a big deal.

I do work for you, I am owed compensation based on terms we've negotiated before I started working for you. From time to time these terms will come up for renegotiation.

There is no need for compensation in excess of what we've negotiated. Sure, I am not one to turn down free money, but understand that this does not affect our normal compensation discussions.

My work is worth $X on the market. I expect that you will pay me $X (or come up with alternative forms of compensation that are mutually agreeable). I will not sign a deal that adds up to $X where part of the compensation is discretionary. My work is worth what it's worth. If it is not up to your satisfaction, you are free to terminate this relationship or renegotiate my pay. You may not unilaterally decide to pay me less than what we agreed upon, and I will not submit to a system that allows this.

Which is to say, you will be unsuccessful if you try to persuade me to lower my base salary on the promise of "bonuses".

I feel that "bonuses" are just ways to hoodwink people who haven't been around the block. Every time I have come across bonuses of this variety, it has been an excuse to lower your base salary. I have never once received the full possible bonus, even though I have been promised multiple times prior to joining the company that "everyone" gets the full amount, and that only very poor performers don't. I have never received a poor performance review.

If you do not pay me $X, whether in salary or in bonuses or in suitcases of bacon, I will leave. I do not give one flying hoot about stack ranks, bonus pools, or any such nonsense. I am not willing to inject uncertainty into my income without a proportional upside for myself.

Discretionary bonuses are full of shit.

The purpose of discretionary bonuses is to address imperfect (and potentially asymmetric) information about just how much you really are worth. It can be easier to assess post-hoc.

Whether it actually does this well is certainly an important question, as well as how it can be abused and how frequently that happens, but it seems remiss to rail against them without noting their intended purpose - which, in the abstract, seems entirely legitimate.

Assessing performance post-hoc doesn't necessarily entail discretionary bonuses.

If I am not performing to expectations, fire me or renegotiate my salary. There are a great many ways to tune my compensation to my actual determined worth.

A discretionary bonus in this case is simply "you should take a below-market salary until we're convinced you're the real deal, and then maybe you will get the salary difference back". I'm not convinced anyone who isn't desperate will take this deal.

And having experienced the discretionary bonuses at two very large and well-known software companies, I am absolutely, completely, vehemently disinclined to ever enter into such an arrangement again.

For discretionary bonuses to make even the most remote amount of sense, it needs to offer the employee an upside for taking on the uncertainty.

It depends on the numbers involved too.

Many companies give you a market rate and a bonus (sign on / stock RSU/ cash bonus etc) on top of it to incentivize extra work / ownership.

My case: my base salary is pretty competitive considering the market/location. I also get a stock award on top of that based on my future potential / current work etc. For me, the stock component has been a reasonable contributor to the final net take home.

Essentially: you work hard, you can potentially make 2x-3x your base and this multiplier only goes up as you go up levels.

I am not against discretionary bonuses like the above (obviously :). Come for the base, toil for the bonus.

This is definitely how it should be, the rule not the exception. It tends to seem like the exception in the places I've been exposed to. Its likely my choice centered around this area of the Atlanta suburbs that reinforces my perception.

"If I am not performing to expectations, fire me or renegotiate my salary."

Both of these are high overhead, which means harder to tune. Depending on circumstance, that may work to the advantage of the employer or employee, or to the advantage or disadvantage of both.

In principle it needn't require desperation, just confidence that your market salary should be above what you can demonstrate it should be during the interview process.

Again, I'm not speaking to actual practicality - I know in a limited fashion how it has and hasn't worked for me, where discretionary bonuses have occasionally been present but have generally not been a large part of my compensation; I don't have any particular insight into their function / misfunction broadly.

"For discretionary bonuses to make even the most remote amount of sense, it needs to offer the employee an upside for taking on the uncertainty."

Obviously.

Anyone saying "Base + max bonus gives the compensation you expect" is trying to take advantage. It should be "base + expected bonus is marginally higher than the fixed rate you would deserve if you are as good as you think".

> Discretionary bonuses are full of shit.

It's both a carrot and a stick for the company over the employee.

Yes, but there is no forced curve fit.

A healthy organization will always "manage out" people who are not fit for the job. At Microsoft, folks are given the hint early enough that they can explore other internal options before leaving the company entirely.

Though, to be honest, if someone just can't cut it, they will leave the company.

"At Microsoft, folks are given the hint early enough that they can explore other internal options before leaving the company entirely."

Except that it doesn't work. No internal hiring manager will ever allow the interview loop/transfer for the internal candidate with the score 4 or 5 (I think those are the lowest scores in the current model:-). In 99.9% of cases those unlucky who got 5 get laid off by the next review period.

I've actually seen one person move after a 5. A poor data set, admittedly. It does happen, though.

And a 4 in some groups is "walk on water" material in other groups (no fooling).

That's not how it works, the best leaves, the political ones stays. Microsoft is so toxic now it's hard to imaging them saving themselves anymore.

Maybe if they fire all middle and upper management.

Thanks to the law of averages, a "stack ranking" system isn't harmful as long as the size of the group is sufficiently large. Employees aiming to be in the top 20% of a 5000-person organization are incentivized completely differently from from those aiming to be in the top 20% of a 5-person organization.

I think what they've done here is to allow each manager in the chain to decide how to handle their organization's evaluation and compensation. You could be VP of a 500-person division and instruct your directors and managers to rank everyone in your org in a single pool; or you could delegate to your directors and tell them to do what they think is best for their groups within their own individual budget constraints, which you assigned.

This assumes that everyone within such a large group would end up ranked accurately.

But the truth is that when you assemble such a large group, you end up comparing apples to oranges. Jane works on a doomed software project and valiantly manages to salvage some of it for other efforts, but management ultimately looks at her project as a failure and has trouble disassociating her work from the result. Meanwhile Bob works on a fairly straightforward hardware project that gets completed on time and within budget, but not necessarily as a result of his actions, and looks like a "team player" who gets rewarded as such.

Assigning a single scalar value ("top $x%") to each of these people necessitates ignoring a huge number of important differences both personal and contextual. Small groups with similar functions allow you to make more meaningful comparisons but only at the cost of ruining the statistical basis for making those comparisons in the first place.

The whole problem with forcing a predetermined model on your organization is that performance appraisals should be an empirical process where the observations peers and management make determine the model that is ultimately adopted (and which will guide future hiring/firing decisions). Forcing a predetermined model onto your organization gives you no data and leads to a self-fulfilling prophecy at best and corruption and politicking at worst.

Critical question unanswered by the letter: Is the bonus pool for a team primarily fixed in advance as a law of nature, or primarily determined by team performance as a whole, at the end of the period?

If it's the former, you're right and the details of how individual bonuses are assigned don't matter much.

The latter however would could up real opportunities: a team that gets together and delivers beyond expectations could all be generously rewarded instead of having the weird fight over who was the individual star performer that gets all the credit.

At least now there is a 'base income' of sorts, and if you are unsatisfied with your job and/or the bonuses you get, you have ample time to find another job. You also have the opportunity to try to improve. This is a great improvement over 'pack up your shit and leave.'

Bonuses must be distributed in some manner, and at most companies it is ultimately zero-sum. Giving one person a higher than average bonus means somewhere in the company (maybe on your own team, maybe someone across the world) will have to get less.

There difference is, theoretically, some teams could all be composed of high performers, and other teams disproportionately of low performers.

The forced curve before meant that every team needed to assign x% as high performers and x% as low performers.

Now, how you assign the high and low performers, from a limited pot of 'rewards', when every manager is going to want most of his team to be considered high performers -- well, that's what the 'forced curve' was intended to deal with. But I don't doubt it also led to increased competition and politics and decreased teamwork, as the one well-known critique of it suggested.

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