Proponents of tying compensation to metrics assert that people don’t take metrics seriously until their pay is at stake. Those opposed to tying comp to goals still say compensation should be tied to performance, but that performance is much broader than most organizational KPIs. Studies show that tying compensation to metrics could be harmful to your company.
Proponents of tying comp to metrics assert that people don’t take metrics seriously until their pay is at stake. In this view, changing the metrics makes big changes in management precisely because compensation is tied to metrics.
The book Conscious Leadership tells the story of a company that made a big change in its metrics. Ramón Mendiola, CEO of the company, said, “You need to touch the hearts of your executives, your leaders, but when you change the compensation, that what leads to behavioral change because they are actually on the hook for it.”
The London School of Economics did an analysis of 51 studies of financial incentives. They found that:
• Performance-related pay often does not encourage people to work harder and sometimes has the opposite effect.
• Financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness.
They concluded that “the provision of incentives can result in a negative impact on overall performance”
Those opposed to tying comp to goals still say compensation should be tied to performance, but that performance is much broader than most organizational KPIs.
At Google, OKR’s, a goal system like KPIs, amount to a third or less of performance ratings, according to the book Measure What Matters.
I wish you intrinsically motivated employees and increased performance. I wish you well.
- Rob Stephens
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