It’s a best practice of countless companies and a recommendation from even more consultants, advisors and the like.
Identify the key metrics for success in your business, measure them and incentivize your team to hit or exceed those metrics with a reward, usually monetary. Pay for performance.
The trouble though with typical pay for performance programs is that they only measure and incentivize outcomes. Sales quotas are a classic example. New revenue is measured and if a salesperson meets or exceeds their revenue quota, they get a reward. The measurement and reward system can be simple or complex, but ultimately it comes down to measuring and incentivizing specific outcomes.
The challenge is that this system inevitably create a culture where the end begins to justify the means. The most cunning and sometimes least scrupulous employees get rewarded more than the most admirable and desirable employees since the former are willing to game the system to ensure they benefit even if the organization suffers. These employees extract as much as they can as quickly as they can from the organization. The admirable and desirable employees, the company builders who create lasting value, feel discouraged and disadvantaged.
If you’re willing to go against conventional wisdom and blaze a new trail, there is another way.
I recommend clients replace their pay for performance program with a behavior incentive program. The focus becomes the input, not the output. We identify the key business outcomes and work backwards to identify the behaviors that will produce those outcomes that are in alignment with organization’s mission and values. Outcomes are still measured for coaching and accountability, but are no longer tied to incentives or rewards. Only behaviors, inputs, are tied to incentives or rewards.
So, for example, the desired outcome for a salesperson is to meet or exceed a revenue quota, which comes from sales to new or existing customers. A behavior that may produce that outcome is developing real relationships with customers with a focus on adding value even if it doesn’t result in an immediate sale. While this would be one of several behaviors needed to achieve the outcome, the shift here is to get the salesperson to focus on developing and meeting the needs of customers (“what can I give”) v. hitting a quota (“what can I get”). The salesperson begins to behave like a long-term stakeholder, pursuing customers who will become good repeat customers, instead of a short-term hired gun, pursuing anyone who will pay regardless of fit or desirability.
In the process of developing a behavior incentive program, everyone comes to agreement on the values and related behaviors that should produce the needed outcomes. If the outcomes do not flow from the behaviors, it’s either time to coach and train the employee, incentive different behaviors or acknowledge that circumstances beyond the employee’s control are to blame. If blame falls on the employee and he or she still doesn’t measure up after a couple coaching and training cycles, the employee needs to be let go or moved to another role. Shifting from paying for performance to incentivizing behaviors is not an abandonment of accountability for outcomes. It is a shift in motivation and focus. Instead of everyone wondering whether they’re going to hit their numbers, everyone begins to focus on whether they’re doing the things that will result in them hitting the numbers. Everyone begins to focus on living out the organization’s mission, vision and values instead of gaming the system.
How do you think your team would react if you abandoned your pay for performance program? Share below or if you’d like some help making the transition, contact me.