by Caitlin Kenney

Yesterday on the podcast we asked you to tell us how compensation works at your job and how you think it could be improved. One of the first people to respond was Elan, who works in the video game industry. Elan writes:

I work at a large, very well-known company that makes video games for PC and consoles. Most of our employees are on salary, but a large part of our total compensation comes from year-end bonuses derived from royalties on our games' sales — essentially a profit-sharing scheme.

A particular employee's share of the bonus is determined from seniority and from a system of performance reviews. Basically, we all privately provide feedback on one another to management, and then management uses this information and its own judgment to decide how big someone's bonus ought to be.

 

This has a bunch of incentive effects. Bonuses increase with individual performance, of course, but also, since the royalties are shares of the total profits on a product, everyone's pay also depends on how well the game sells generally. In essence, our pay is proportional to the performance of the whole team and the product itself.

So everyone has a stake in trying to make the project a success as a whole, by working a little later or helping out with testing or whatever else is necessary. It also creates social pressure to do well, since the size of *my* bonus depends on how well you do *your* job, just like an athletic team.

There are also problems. Those bonuses can reflect the caprice of management or bad blood between peer reviewers. Even good-faith managerial reviews may not always be a perfect measure of performance. And the social pressure swings both ways: it can end up in a situation where everyone's afraid to be seen as the slacker so everyone goads each other into working longer and longer hours, until we're all working around the clock and missing our families.

I also think this only works because our company is an older one and privately owned. This sort of arrangement was more common in the 90's, when teams were smaller and studios got large cuts of game revenue. But over the years many of the large publicly-held companies have abandoned it, possibly because the teams are larger, but possibly also because the pressure to return dividends can outweigh the value of retaining the best and most talented (and most expensive) employees.