More often than we like, companies engage in what’s been called “the folly of rewarding A, while hoping for B.” Organizations do this when they hope that employees will engage in one behavior, but they reward for another type.
Take the story of Peter Gorelkin, who worked as a tractor operator planting grain at a farm in Siberia in the former soviet union. His supervisor was paid by the number of hectares Gorelkin was able to plant. The grain was supposed to be planted at a depth of 6 centimeters to be sure it would germinate, but Gorelkin’s supervisor insisted that the grain be planted only 3 centimeters deep. The supervisor knew that planting grain at only 3 centimeters would allow the operator to cover more hectares per day. This meant more pay for the supervisor even though most of the seeds might not survive.
We don’t need to look as far as an obscure case in Siberia a long time ago. The table below provides further examples of common management reward follies.
|We hope for…||But we reward…|
|Teamwork and collaboration||The best team members|
|Innovative thinking and risk-taking||Proven methods and not making mistakes|
|Development of people skills||Technical achievements and accomplishments|
|Employee involvement and empowerment||Tight control over operations and resources|
|High achievement||Another year’s effort|
|Long-term growth; environmental responsibility||Quarterly Earnings|
|Commitment to total quality||Shipping on schedule, even with defects|
|Candour; surfacing bad news early||Reporting on good news, whether it’s true or not; agreeing with the manager, whether or hot he or she is right|
Three themes seem to make up the biggest obstacles to ending this folly:
- Individuals (both employees and management) are unable to break out of old ways of thinking about reward and recognition practices.
- Organizations often don’t look at the big picture of their performance system.
- Both management and shareholders often focus on short-term results, rather than rewarding employees for planning for longer ranges.
It may seem like common sense that if you’re objective is “team performance”, you shouldn’t reward each individual according to individual productivity. But common sense doesn’t always prevail. Why is the compensation of so many CEOs linked to accounting-based and stock market-based incentives? Both incentives focus on the short-term. Many expenditures that might have long-term benefits are cut (such as R&D for product innovation, or marketing expenses to penetrate new markets). Executive pay is just another example of how it’s much better to reward the desired outcome, by including a mix of factors that account for both sort-term performance, and longer-term strategic decision making.