Bonuses and Stock Options are Bullshit
Corporations work very hard to trick their employees.
They have whole departments whose only focus is develop compensation plans that motivate employees into working more while getting rewarded less. They call this "creating the proper incentives for employee behavior."
Don't fall for it. It's bullshit.
I didn't realize this until well into my FIRE journey. When I finally got my head on straight, I realized that the uber-complicated bonus formula cannot possibly be influenced by me. My work effort did not drive my bonus.
Why is this the case? Because the company has far more say in the amount of bonus you receive than you do. They can change the targets while adding "accelerators" that you'll never achieve to make it seem advantageous to you.
Don't even get me started on the uselessness of stock options. Most stock options are NEVER paid out. There are so many ways to keep you from ever cashing in: the company doesn't go public, you are let go from your job, you leave the job because it sucks, the company adds venture capital and depreciates the value of your options, etc.
Stock grants (a.k.a. RSU's) are NOT bullshit, but you've got to stay with the employer a LONG TIME to get your money. And there's no way to know NOW what the grants will be worth in the YEARS ahead when it comes time to cash them in.
Corporations play these games because they work. They fool their workers into accepting less and working more.
Why do we all fall for it? The problem is that our reflexive brain - the emotional side - gets excited by the possible high bonus, commission, or stock option amount. Problematically, our reflective brain - the logical side - takes longer to realize that the probability that we will impact the bonus is extremely low.
We all make decisions by GUT FEEL - sometimes when we really, really SHOULD NOT do so. Considering bonus compensation is one of those times.
Trying to pick stocks is another time when people mistakenly rely on their reflexive brain (and justify their dangerous behavior with their reflective brain). That's the biggest reason why the EVIL FINANCIAL INDUSTRY makes a TON OF MONEY off individual investors.
When you get your head on straight and start focusing on FIRE, you'll be reticent to accept a bonus structure. Instead, you'll want steady income each month that you can easily plan for, invest, and stop worrying about.
Posted by Gregg Nichols | Permalink
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