People of a certain age may not know that before computers could screw up an entire day's work, it was possible to get similar results by hand.

That's one of the reasons that in the 1940s, Timothy Eaton's company developed a rewards system for its mail order catalogue department. Every time someone in the recording office wrote an address down wrong, the unit was fined five cents. Every time someone in the copy department noticed a mistake, they were rewarded 10 cents. The system was said to keep everyone on their toes.

And, presumably, caused life-long hatreds between the copying and the recording units.

'There can never be a bonus scheme that is elaborate enough to take care of all the anticipated and (crucially) unanticipated effects of incentives on your performance.'— Dr. Raphael Gomez, University of Toronto

In this tiny peek at forgotten Canadiana, it's possible to see many of the benefits and tensions implicit in the modern employee-bonus system.

Because while the T. Eaton employees may have been on their toes, tiptoeing employees might not have been what the department store needed.

Dr. Raphael Gomez, associate professor of industrial relations at the University of Toronto's Centre for Industrial Relations and Human Resource Management, believes bonuses don't necessarily deliver the desired results.

Administering bonus plan complex

"Take the example of the former quarterback Rob Johnson from the Buffalo Bills. The management loved this guy because he ‘looked the part’," Gomez said in an email. "But he threw a lot of interceptions."

Gomez says the team added a bonus to Johnson's salary linked to his completion rate.

"The bonus worked exactly as anticipated: Johnson's completion rate dramatically increased. But, it turns out you can increase the completion rate [in] two ways: by making more accurate passes or by not passing the ball at all! He had many more injuries, and the team scored less, all because he was afraid of passing the ball for fear of losing his bonus."

Nortel chief executive Mike Zafirovski is not expected to take a bonus, but eight senior executives could receive up to $7.3 million US. (Gautam Singh/Associated Press)

"Moral of the story … there can never be a bonus scheme that is elaborate enough to take care of all the anticipated and (crucially) unanticipated effects of incentives on your performance."

Because performance expectations are all so different, human resource consultants say there is no typical bonus system in Canada. But often, bonuses are based on some combination of how well an employee meets their personal performance targets and how well the company has done in a particular year.

But again, it's just not that simple.

"Sometimes, there's a lot of subjectivity on whether you've made your targets, " said Lynn Brown, the managing director of the Brown Consulting Group in Toronto. "Sometimes, the objectives are rather grey and subject to a lot of interpretation as to whether you've met your objectives and how much bonus you're entitled to. And that can be a problem."

Brown says to do a really good and fair measurement of performance, it must be precise.

"But that takes a lot of administration," she says. "And unless you’re a really big company with a team of people that manage this performance measurement, and you train them really well how to do this, sometimes it falls off the rails."

Administering even a small bonus plan can be complex. The bilingualism bonus directive on the federal government's website runs on for 2,500 words.

The bonus is $800 a year.

The New York Times reported in February that Citigroup handed out $4 billion US in bonuses in 2009. This is from a bank that lost $19 billion in 2008. The paper reported one investment banking associate was so disappointed by his bonus, he said it felt much like a "doorman's tip."

If you're wondering how someone could think they were even entitled to taxi fare home after their company dropped the GDP of Uruguay, then I'm afraid you've forgotten the 1952 dust-up of the Niles-Bement-Pond Company versus Amalgamated Aircraft & Agricultural Implement Workers of America.

Former Royal Bank of Scotland CEO Sir Fred Goodwin took a £700,000 ($1.2 million Cdn)per year pension from the bank a month before it posted a £24.1-billion ($43 billion Cdn) loss. (Danny Lawson/Associated Press)

Since that includes just about all of us, I'll continue. Bonuses don't have to be an extra; sometimes, they can be a relief from stuff you don't want to do. German storm troopers in the First World War were exempt from mundane work like widening trenches and delivering supplies. Despite the greater risk of sudden death and painful dismemberment, recruitment rates for the storm troopers were high.

Apparently, just anything beats widening a trench.

But when the stakes are lower, incentive typically means material reward. The Princeton, N.J., sociologist Viviana A. Zelizer has done much of the hard work in tracking down the history of the bonus in the last 100 years.

She recently wrote in the Huffington Post that employers began replacing Christmas turkeys and gifts with cash bonuses at the beginning of the last century. J. P. Morgan raised the bar by giving employees a full-year's salary as a Christmas present. Other companies calculated Christmas bonuses as a percentage of salary, and by 1911, 10 per cent was considered quite liberal.

Even early on, there was a resistance among employers to consider them "bonuses." Employers preferred to think of them as "gifts," useful for assuring loyalty and productivity.

But that's not exactly the way employees came to see it; eventually, they came to regard bonuses as a regular part of the salary — a right.

By 1950s, bonuses were part of wage

Zelizer says by the 1950s, the Christmas bonus officially lost its status as a gift, and that's where the Niles-Bement-Pond Company comes in.

When the company tried to reduce bonuses to help pay for a new retirement plan, the U.S. National Labor Relations Board ruled that "the Christmas bonus could no longer be considered an employer's discretionary gift but an expected and negotiable component of a worker's wage."

Consider Clark Griswold's rage in Christmas Vacation when his boss enrolls him in theJelly of the Month club rather than cutting him a cheque. The Griswolds had legal precedent that the bonus was non-negotiable. What's more, his boss had crossed a social boundary: by presuming the bonus was discretionary, he had unilaterally overturned the complex contract of the ruling over the ruled. Or something.

'Its very hard in tough economic times when bonuses can't be paid out. They're real de-motivators.'— Lynn Brown, Brown Consulting Group

"It's very hard in tough economic times when bonuses can't be paid out. They're real de-motivators," said Brown. "Companies have to be very careful in how they communicate bonuses and how they're written into policy and contracts of employment."

Zelizer writes that bonuses, commissions, prizes, expense accounts, frequent flier miles, health benefits, jets and bathroom keys now define relations among people within contemporary firms.

"These payments announce, and to some extent determine, which pairs of workers are equal or unequal, close or distant, solitary or competitive," she writes.

With the recession cutting into corporate profits, it's also cutting into corporate ability to pay bonuses. And that can make for an increasingly unhappy workforce during increasingly unhappy times.

"They're not only struggling with being able to not award bonuses but keeping staff and trying not to reduce salaries," said Brown. "People do feel as though they are stuck, and with the recession being as bad as it is, it will be interesting to see how employers respond to that. How much tougher will employers be with employees when they know there are limited opportunities for them to go to other places?"

Unionized firms keep executive pay in check

And if shareholders were quiet about bonuses before the recession, they've since found their voice. Many boards face demands for "Say on Pay" from frustrated shareholders angry at seeing diminishing profits paid out as bonuses.

"Publicly traded companies that lack a major stockholder tend to have weak boards of governance and executive pay that is out of line with market rates," says Gomez.

"Stockholder activism is perhaps a good thing, bringing accountability back to the boardroom."

Gomez believes the end result, however, might be just to drive more firms to become private. He thinks the best strategy for shareholders might be to just sell their stock and invest in a company that pays executives more sensibly.

CEO Richard Fuld took home $354 million US from Lehman Brothers during his last five years with the company. (Susan Walsh/Associated Press)

"Or buy a firm that has a union in place! It turns out we found that unionized firms pay less in stock market options than non-union firms," said Gomez. "That is one check on corporate greed that people rarely look at. And when they do look at unions, it usually means the firm is punished in the stock price for having one. Maybe now, after the AIG affair, having a union in place acting as a countervailing check on executive pay is a plus for stock buyers and stock markets."

The public rage against bonuses shows no sign of cooling. The French government is preparing to ban stock options and bonuses at companies that receive state bailout money. Laid-off Nortel employees seethe that they were given no severance while eight executives shared $7.3 million US in incentives. Even the former CEO of AIG, Maurice "Hank" Greenberg, criticized his former company for paying out millions in bonuses.

If bonuses are really to encourage loyalty, build the brand and reward the diligent, there's rarely been a worse time to excel. At least in public.

Richard Fuld, the former head of the now defunct Lehman Brothers was paid $354 million US during his last five years with the company.

Just what kind of person keeps going into work after receiving these giant incentives?

"The big guns who are making obscene amounts of bonuses? I don't know why they would stay," said Brown. "Personally? I'd be on a beach."