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Distributing Bonus to Agile Teams is Like Playing with Dynamite

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In an interesting discussion started by Sam Bayer on Lean Development group, members discussed on the best way to distribute bonus.

Mary Poppendieck was of the view that since software development is team sport the distribution should not be aimed at individuals but should be based on the team's performance. On similar lines Robin Dymond suggested that the right formula could be basing the distribution 50% on team performance and 50% on the individual's performance. However, the caveat here is to identify the performance of an individual in an Agile team. He added:
The other key question is how to we allow teams to recognize the leaders within their midst, like the QA person who steps up to really cross-train everyone on testing and the QA tools, or the developer that is really disciplined about automation and is frequently improving the productivity of the whole?
Adrian Howard suggested that measuring individual performance to distribute bonus is counter-productive in many cases and should be avoided. It becomes a major reason of conflict between team members and could quickly collapse a well oiled team. According to him, once the distribution is based on individual performance then people tend to put their own goals over the team goals.

So what is the best way to distribute bonus?

Matt Swaffer suggested
There are 2 schools of thought, one says everyone gets X% of their salary as a bonus, the other is that there are $X to distribute throughout the team and you spread it out evenly.
However, this solution did not seem to convince many members of the group. Some suggested that if the bonus is equally distributed then the people who are putting more effort than others are bound to be demotivated, you cannot afford to demotivate high performers by even distribution. On the other hand, if it is a percent of the salary then the people who are already getting more would get even more. For example assume A gets 100K salary and B gets 50K. Now if the bonus is say 5% then A would get 5K and B 2.5K

Another innovative suggestion was to let the teams decide on how the bonus should be distributed. Mary had a strong case against that. She mentioned:
Mike Cohn talks about a case where a team was given a LARGE bonus and told to decide how to split it among themselves.  They attempted to come to an agreement on how to share the money, but this created huge and irreconcilable conflict in the team. Eventually all they could decide to do was split it equally, even though many though this was very unfair.  Asking the team to decide how to split the bonus created so much conflict that most members wish there had never been a bonus in the first place.
The group did not seem able to agree on a the best possible way to distribute bonus. For some teams a certain way of distribution made sense which was a complete chaos for other teams. The group however seemed to agree on the point that distribution of bonus to an Agile team is like playing with dynamite.

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