cognitive dissonance says the smaller and meaningless the bonus, the more intrinsic motivation it will create in the bonusee.

No performance management or comp design will fix a broken team, a petty person, a lack of shared vision, a political culture. At some level those of us who tend to the world of engineering or economics would like it to be so — would like to find the magic lever — but it does not exist. What motivates us is personal. No universal “system” will work for all persons.

Thus, we need to design the system with specific persons in mind, or choose the persons with the system in mind. At the same time, we need to understand that people being what they are — individual, changeable — the system will not sustain itself for all time, through all growth and change. thus we need to design it to evolve or end itself gracefully.

How about….

(1) Hire intrinsically motivated people. Describe jobs in terms of ownership and impact on the vision and goals — never tasks.
(2) Pay more base to hire the absolute best — not just technical skill but attitude, cultural fit. Require team consensus, or close to, before adding a new person. Use both technical and behavioural testing, while at the same time making a positive experience for the candidate. The right candidate will enjoy a meaningful technical challenge and interaction with culturally-compatible people, if all is done with respect.
(3) Use that quality of people and comp, combined with a great environment, to create a culture where people feel “lucky” to be there and want to continue to earn their place in the company and culture, the respect of their excellent peers, etc. Ensure there is lots of ad hoc inquiry, constructive feedback and recognition. Reward each other with development, career growth, special experiences, meaningful gifts, not with cash.
(4) Create group rewards that reward (a) corporate goal achievement; (b) shareholder value greation.
(5) Have no invidual cash bonuses. Focus things like annual salary increases on remaining competitive to the market, reflecting where the market has gone and where the person should sit within that based on their growth and performance within their role. These should be smaller than group rewards. If you have done a good job of the high-feedback, open culture, this will be easy, and can be quite transparent.
(6) Stay small. Failing that, create “smallness” by building in modules that run like small businesses. Never add more than 10% new people to a team in a year. If you can’t survive that way, see what you can outsource. You may pay a premium on the work, and you may lose some control, but you can link pay to deliverables, switch the relationship on and off, and scale without risk to the culture. In this case, “small” means that you can at any moment name every person on the team and know what they are working on, what they enjoy and are good at, and how things are going for them.
(7) Bring in co-ops, interns, young people who you can try out on the job for fit, and grow well into your culture. Make sure though that you balance with some wisdom, experience and humility.
(8) Stay focused. Know exactly what knitting you are sticking to. Ensure there is a meaningful goal beyond creating shareholder value — something that every person understands and knows how to impact. The meaningful goal must be something that you personally can sustain passionate about. Your passion and commitment sets the tone.
(9) On a regular basis — perhaps twice a year — bring in a trusted contrarian or two or three to poke holes in your worldview and ensure your cultural integrity doesn’t mean that you have blindspots.
(10) Accept that if you are the leader who has created this world, you can probably not step away. It is a rare person who is clear enough and charismatic enough to make this culture happen. You will be lucky to find a successor. You will be luck to be able to sustain this beyond a certain level of growth and length of time. You may want to design your business with a time horizon in mind from the start, making the plan clear to all employees.