Incentives: Making the world go round

I think most managers are familiar with the phrase, “what gets measured gets done,” and I think our common sense tells us that we ought to be careful about the things that we incentivize because it will affect the types of behavior that occur. A lot of people will wonder why it doesn’t always work so well, why the performance management structure that they’ve set up isn’t getting them to the results that they want as quickly as they want. I think it’s because while the things I said previously are true to a large degree, people do the things they are incentivized to do and if you measure specific activities you’ll generally end up with better performance. When there are incentives, people are focused on getting them accomplished. On the flip side, I think you have to be careful about the general application of that rule. You have to identify some smaller steps to getting you to that big picture goal.

One of the problems that organizations have is that the goals may be set at such a high level that people don’t have insight into what activities they need to do to help the larger organization get there. Or they may not understand what the connection is between them and that goal so they lose the ability to correlate their day to day activities with advancing the organization towards that goal. So it’s important for incentive structures and those types of large organizational goals to be decomposed enough so that the people that most effect change are able to do what they are incentivized to do. An easy example of this is if you look within a sales organization, or if you are a company that incentivize on the biggest corporate wide revenue targets. Those types of goals are great and most organizations target some amount of growth across the top line, but it may be worth looking at incenting specific behaviors among customers and basic activities that you, as a management team, believe are going to drive that sales team forward to success. A similar approach can be applied to anything, for instance, if you have a help desk, or really any activity that you have in your organization. If you haven’t created a tiered structure, you may be providing all the big picture guidance in the world of what you want to happen and have a line of how you’re measuring the things that you want done in your organization, but if you haven’t decomposed them enough to enable people to see how it applies to them, you probably won’t get the type of performance that you had hoped for.

I’m also aware that on the other side of that is this desire to break things down to such a level that so much time has been spent measuring that there’s no time left to spend performing. So there is a fine line there between breaking it down so much that the measurement activity gets in the way of achieving the measurement, but in general, you need to make sure that your incentive and measurement structure reaches far enough down so people can see how they’re connected to it. I’m curious to know what other people think about this. If you’ve had experience designing incentive structures or performance management structures, please weigh in. I want to how people try to make that tie back, or even if they do at all.