Politicians and the media have united in whipping up public hatred against the “bonus culture”...

...thus distracting attention from their own responsibility for the current economic mess. How very convenient!

Those of us who understand business should unite in response – and defend the principle of payment by bonus.

Although the word “bonus” is often associated in the public mind with ex gratia payments, these days a bonus is usually an obligation of a contract of employment that pays, at least in part, by results.

Payment by results is good business. It is, after all, how entrepreneurs are paid. It is also the best way to reward key employees. It gives them a personal interest in the success of their work.

The problem is not with the principle of the bonus but with the way too many bonuses have been paid to the wrong people for doing the wrong things. People will respond to what they incentivised to do. You can’t blame them for that, but you can blame the fools who structured such short-sighted schemes in the first place.

The most effective remuneration system is one that aligns the interests on the individual employee with that of the business and/or its shareholders.

This sounds simple, but in practice it can be quite a challenge. However, that is no excuse for not trying – business is a challenge, that’s why we entrepreneurs are really quite rare.

Never forget that by rewarding unwanted behaviour you just get more unwanted behaviour. The problem with the bonus culture is not the bonuses but what they were rewarding.