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Why BP's new bonus plan won't work

A few weeks ago, I rated new BP CEO Bob Dudley's efforts to shake up the oil-spilling giant in the wake of the Deepwater Horizon crisis. On the topic of bonuses, I reserved judgment, as the company said it would review how people were assessed and didn't offer any details on the changes.

But I never imagined they'd do this. In an email, Dudley told employees that fourth-quarter bonuses would be based solely on the company's safety record, including "reducing operational risks" and "excellent safety and compliance standards." While existing bonus performance metrics would be honored for the first nine months of the year, the Wall Street Journal reports, safety will be the only measure for the fourth quarter.

The problem? It won't work.

For one, it smells like a publicity stunt. Yes, Dudley may be going overboard to send a signal to employees and the public. But everyone--both outside and, more important, inside BP--knows that you cannot incent people on safety alone; and as it is, it reads like a ploy. One quarter (the long term plan is still under review) is hardly enough time for any over-weighting of safety records in the performance metrics to make an impact, and everybody knows it.

In addition, the timing for such a drastic measure is off. It's so close to the incident that people all over BP are surely thinking about nothing but safety these days already. The real challenge will be a few years from now, when the media and legal glare is gone and old habits of pushing profits ahead of safety resurface.

BP would have been much better served to quickly come up with a set of performance metrics that boosted safety's role. As of last year, safety made up just 15 percent of managers' bonuses, according to the company's annual report; financial and operational targets made up 70 percent. (An additional 15 percent was tied to people management.) It's really not that hard to recalibrate the yardsticks--at the very least, the company could have given all three measures equal weighting, or even a somewhat higher weight to safety, if it so desired.

Another argument says that rewarding a core value--we should hope safety is one of them at BP--is a bad idea altogether. Instead of giving managers bonuses for good safety, argues BNET's Kirsten Korosec, they should simply be fired for safety lapses instead. She makes a great point. Bonuses, if you can recall, are not entitlements. They're for stellar performance, or significant improvements--and not for simply doing your job.

By Jena McGregor

 |  October 20, 2010; 11:37 AM ET |  Category:  Bad leadership , CEO watch , Change management , Corporate leadership , Crisis leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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