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Why Rewards Cause Problems #7: Rewards Allow the Tail to Wag the Dog

Guest post by: Robert Whipple

Article Overview: Sometimes well-intentioned reward systems take on a life of their own and become problems for the organization. They can suck up a huge amount of resources and create mountains of busy work if we do not keep them in check. This article recalls some stories from my personal experience of what happens when the tail begins to wag the dog.

Why Rewards Cause Problems #7: Rewards Allow the Tail to Wag the Dog

Reward Systems Allow the Tail to Wag the Dog

I have found corporate incentive systems have all kinds of traps and dangers. Here are some typical problems that come up. These are real, not fabricated or sterile psychological studies

You have the measures for your job, but the data needed is not exactly the same as what is already provided by corporate systems. You bring in a "systems analyst" to help extract the needed numbers and put them in a format that is usable. The analyst works on that and many other chores to allow you to keep score. Meanwhile another department has some of the data you need. Your "measures" person starts to negotiate with their "measures" person. This kicks off a political skirmish because what would be most flattering to your group puts the other department at risk of looking bad under some circumstances. The issue festers for several weeks and begins to polarize the two groups that had previously worked well together.

The data is so complex to figure out that you hire another "measures" person to keep track of the entire data base. This person links with other "measures" people at other levels of the large organization to be sure everyone's interpretation of the measures is the same. Some rules are established on how to measure inventory, for example. You find these ridiculous because they force a physical inventory every Friday night. That is the time when you want to stock parts for the weekend. So, you get into a fight with the controller about it. The controller is looking for data accuracy and Friday night, after most departments are done for the week, is the best time for inventory. You keep pushing back for an alternate plan and are finally told to be more cooperative (a black mark).

Actually you notice a kind of "cottage industry" springing up all over the company. People are enrolled who specialize in the measures. They have complicated computer programs that allow managers at different levels to pull out the relevant data from the matrix information for the whole organization. In many cases new rules need to be established to sort things out to everyone's satisfaction. You notice it is not uncommon to have the measures for the current year not finalized until March or even April while there are countless meetings to argue the fine points.

On one of the measures, it is necessary to convert the raw data from a scale of 400-700 to a scale of 0-1000. Since the data is non linear, it isn't a simple algorithm to convert from one to the other. Several ideas are tried but nothing seems to work. Finally the administrative aid to the President sends a letter out on how to convert one scale to the other with minimal bias. You aren't happy about this, but go along with it. However, you are suspicious that other managers use the older formula because it makes them look better. There is no way to prove this, but it bothers you.

A couple of the measures are driving people to do the wrong things. For example, in an effort to boost sales the CEO instituted "number of sales calls" as a measure. This was based on historical data showing total revenue is highly correlated with the number of sales calls. Unfortunately, with the new measures in place, your sales team spends significantly less time and energy on each individual customer in order to get more sales calls accomplished. This reduces the "hit rate" at closing sales. You are pretty sure the data for this year will show a negative correlation between revenue and number of sales calls, but the measure is already set.

In an effort to reduce costs, a measure has been set to decrease the amount of rework in the factory. Rework has accounted for 30% of the product cost and the goal is to cut that in half. So far the measure is on track, but you have discovered the inspectors are passing slightly defective product that would have been previously rejected. You are fearful that customer satisfaction will take a hit, but at least the level of rework will look good.

One significant problem has arisen due to the measure selected for "employee satisfaction." Based on some HR literature, the senior management has focused on training as the key driver of employee satisfaction. A strong link has been shown between training and motivated employees. Everyone in the organization must have at least 50 hours of training a year for the company to score well on the measure. You are finding that people are being forced to attend training they don't want or need in order to get maximum score. However, the employees are very unhappy because nobody is there to backfill for the 50 hours they miss, so they have to work extra hard to make up the time. Of course, there is no overtime available because that is too costly. Employees seem really up in arms about this issue, but the measure is going to show outstanding "employee satisfaction" for the year.

At the end of the year, each manager submits his/her measures to the next level and the process is "rolled up" to the corporate level. You have put a lot of work and expense into keeping the data with precision. You are suspicious that others in the organization are just estimating the numbers and often inflating their scores. When all the scores are rolled up, top management sees a big problem. The individual scores should have led to a much higher corporate score. To bring things back in line, they have issued an edict that the scores for all managers will be lowered by 25%. You think this is totally unfair but there is nothing you can do about it.

These are but a few of the things that happen if the tail is allowed to wag the dog. In fact the amount of time spent trying to deal with the numbers is a significant distraction from the true vision of the corporation. I once had the opportunity to give some pointed input to a Senior Vice President. He asked a group of people at the end of a class on "improvements" if anyone had an observation to share. He had been talking about the measures process in our company. I raised my hand and said, "You can't possibly know what is going on, because if you did, you wouldn't allow it." He looked like he had been shot with a poison arrow. But, to his credit, he worked at taking some of the Mickey Mouse out of the system during the next cycle. The pendulum of bureaucracy had swung too far to the left and needed to be brought back.

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Article Tags: Interest, motivation entitlement relationships problems Reasons Risk control, pay, Punishment, resources, rewards



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