Bonuses, Government Regulations, and B.F. Skinner

One might ask what in the world the three subjects have in common, most contractors will be pleased with the answer but maybe not as many DCAA auditors.

FAR 31.205-6 (f) (i) and (ii) set a standard for bonuses that many employers/contractors object to:

(i) Awards are paid or accrued under an agreement entered into in good faith between the contractor and the employees before the services are rendered or pursuant to an established plan or policy followed by the contractor so consistently as to imply, in effect, an agreement to make such payment; and

                (ii) Basis for the award is supported.

Contractors believe these regulations put them into a box and redefines a bonus as a normal form of compensation and not an award meant to reward, increase productivity, retain, and other positive benefits. In other words, if the employee knows when and what they are going to get for a bonus, they do not feel as rewarded.

Also, as a general rule, contractors do not wish to be tied into a bonus commitment. They would like to tie the profits and based on the company’s performance. A subsequent section of the FAR makes that questionable in some auditor’s minds.

I tend to recommend contractors divide additions to compensation into two areas: 1) Bonuses that meet the regulatory requirements, and 2) Awards that are not required to do so.

Naturally DCAA auditors might argue this is semantics, but this is where science, in the form of B.F. Skinner provides support for the approach.

B.F. Skinner was a major psychologist of the twentieth century with a major influence both on psychology and modern culture. He is best known to the general public for his “Skinner Box”, a type of puzzle box utilized to study and modify animal behavior.

And out of these Skinner Box experiments comes the science to support the common sense of the contractors, “Schedules of Reinforcement”.

Skinner used this term to describe a set of rat behaviors in a Skinner Box where the rat pressed a lever to obtain food. Sometimes the rat received the food on a fixed number of times, say the first hundred (100) times it pressed the lever. This is analogous to the contractor following the government’s bonus regulations. The employees (although they are certainly not rats) receive a fixed bonus on a specific schedule.

As a contrast, other rats received food when they pressed the lever on a variable, sometimes after pressing the lever five (5) times, sometimes after fifty (50) times. I would argue that this is the alternative Award scheme that I recommend contractors adopt. Employees know their award is coming but not necessarily when.

Guess which rats worked harder, pressed the lever more? The rats under the variable schedule.

Again, humans are not rats, humans will catch on pretty quickly if the promised awards do not arrive and are considered inadequate.

But here is the science to back the position.