The Wall Street Journal reported today in the article Goldman Blinks on Bonuses that Goldman Sachs is forgoing its executive bonuses.  It is a small (very small) step in the right direction for investment banks and other corporations under the scrutiny of the public.  Yet 31,000 other Goldman workers may still get bonuses and this deal is good for 2009.

The plan will award executives stock that can’t be sold for five years.  Taking $10 billion of bailout money and paying out bonuses at the same time is incredibly brazen.  AIG, Bank of America, etc. have the same problem.

The public and shareholders have grown weary of the weak arguments associated with bonuses.  Organizations whining about we can’t keep or find good people.  Are good people really only extrinsically motivated?  I mean can’t we find a “good” person for a measly half-million dollars that is more intrinsically motivated.

It would be naive to assume that incentive plans didn’t play a role in getting us into our current financial mess.  Excessive risk-taking is only part of the problem.  The sub-optimization, waste, cheating, manipulation, short-term thinking that incentives promote compromise US corporations ability to compete world-wide or compromise the trust of customers and other countries.

I am hopeful that we learn something coming out of this recession.  The same lessons that Dr. W. Edwards Deming tried to teach us . . . “Abolish incentive pay and pay based on performance.  Give everyone a chance to take pride in his work.”  He argued that 95% of the performance of any organization is attributable to the system in which they work, not the individual.  The individual can not be separated from the system.

After all, what is it going to take to understand Dr. Deming’s message . . . a huge recession?  Check, got that one covered.  Coming out of this mess, we will need a different leadership strategy to prevail.  Let’s start now.

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Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.