Why tomorrow’s Wall Street leaders don’t like bonuses
By Peter Cappelli, Michael Useem, Matthew Bidwell and John Paul MacDuffieThursday, December 16, 2010; 4:00 PM
For the past 20 years, during midterm exams at the Wharton School, we’ve asked our MBA students to write a paper about how they were paid and managed at their last job. These students average about 28 years of age; many of them have already worked for big Wall Street firms and received big Wall Street bonuses.
Managers have long believed that the prospect of a bonus can motivate young workers to work harder and smarter, even in a year like this one, when bonuses are expected to fall. By making a huge amount of an employee’s compensation - possibly even twice his or her regular salary - dependent on the firm’s results and the individual’s performance, managers hope to align workers’ incentives with those of the larger company.
Yet, in reviewing the roughly 800 essays our students handed in this year, we see a different story. Students increasingly distrust the bonus system and contend that annual bonuses are too large a part of the way they are managed, often serving as a substitute for thoughtful supervision or meaningful reviews.