The bonus quandary - and why you don't want to be 'normal'

There’s a topic that’s come up over and again in the past few weeks - the question of compensation for members of your medical department and in particular - annual bonuses.

There's a thousand different ways this works, but typically annual performance bonuses are calculated as a factor of the company performance and the individual performance. Putting the company performance part aside for now, let's consider the individual performance.

A common way of apportioning bonuses across the department, is to divide the 'individual performance' into three categories:

Let's call the first "satisfactory performance" - this is generally where the majority of the team should sit. The zone of 100% bonus vs target.

The second tranche is for the "high performers". It’s purposely kept narrow to ensure that only very few members of the team qualify, but if they do, this may equate to up to 120% bonus vs target.

Which leaves the third tranche - those performing below expectations, or the "poor performers".

Now let’s say that of the 15 people in your Medical Affairs department, there are three people who are performing beyond expectations and who are in line to be recognised as sitting in the ‘high performing’ category. The remaining 12 are all performing satisfactorily.

This seems like a reasonable place to be, but it's created a problem. The bonus pot is fixed - nominally at 100%. Meaning that for every ‘high performer’ you've identified, you're going to need to find a ‘poor performer’ to balance the books.

_. _. _.

So how to manage this? A few potential routes are:

1) We play by the rules and go looking for our under-performers, so that our high performers can get what they deserve. Sure it's a zero-sum game - both for your department and for you in how it reflects on your performance as the team leader - but it makes the numbers make sense

2) We avoid recognising anyone in the department as anything other than satisfactory - there's no room for excellence here, but at least there's no poor performers either

3) We brace ourselves for the dreaded calibration meeting, where departments get together to make their case that everyone in their department is operating at, or beyond expectations and therefore someone else’s team needs to take the hit on the low-performance categorisation

But before you choose your approach, consider this a trick question.

Because the rules that we've worked to all these years are based on a flawed assumption - that you and the business hire in the first place from a normal distribution of capability.

You don't.

As life-science companies in a highly specialised technical domain, hiring highly intelligent, capable people, the desired distribution of performance should be skewed towards high-performers in the first place.

It shouldn’t be a normal distribution and it certainly shouldn’t be symmetrical.

Meaning that it is perfectly possible that most of your department are satisfactory, some are high performers and very few (or none) are performing below expectations.

So before your heart sinks at the thought of another end-of-year performance review and the awkward conversations that are coming, consider this - do the rules that you are working to even make sense?

No-one ever hired a high-performing team based on a random sample from a normal distribution, so when it comes to rewards - why use this as your starting point?


This is part of a series of posts by LUCENT biopharma – focused on the future of medicines and their marketing in the biopharma sector.

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