This article is interesting. In particular, this case study:
Consider the example of a Canadian engineering firm. Each year, just before Christmas, the founder and CEO of the 30-year-old company used to look over each employee’s contributions for the year, and then award each person a bonus based on his personal beliefs about the value of those contributions. Sometimes the bonuses would be large—say $30,000—and other times the bonuses would be small ($5,000 or nothing at all). There was no formula, only the judgment call of the founder.
As the organization grew, however, the CEO requested that company leaders develop a rational and transparent process for determining allocation of bonuses. The leaders worked for a year to create a fair bonus system based on pre-established key performance indicators, and launched it through town halls and workshops so that everyone was clear how their bonus would be calculated. A year later, after the bonuses had been calculated and distributed according to the new system, employees acknowledged the increased transparency, but their perceptions of the fairness of the bonuses were significantly worse, and they trusted the employer less. Even those who had received as much or more than the previous year were significantly less satisfied with the fairness of the more transparent system, and trusted the employer less.
What went wrong? Interviews we conducted with employees suggested two unintended side effects of the new process. First, transparency invited a critical and transactional evaluation, rather than the bonus being seen as an unexpected gift. Second, transparency highlighted those who received larger bonuses, inviting envy on the part of those who fared less well.