I’ve become increasingly skeptical towards motivation systems in HR that tie rewards directly to KPIs or performance metrics. While metrics can be helpful, relying too heavily on them can create unintended negative consequences. Here are a few key reasons why I’m rethinking this approach:
- Resistance to Change: motivation systems driven purely by a few key indicators can inadvertently create resistance to change. When financial interests become deeply entrenched in these indicators, they can stifle necessary changes, even when they are glaringly needed for the betterment of the organization. After all, most changes would have direct impact on at least some metrics. At the same time, it’s an almost certain necessity to rotate metrics you have chosen as time goes on and your business changes.
- Financial Interests Can Taint Indicators: One of the primary concerns is that financial interests can sometimes cloud the purity of these indicators. When monetary gains are directly linked to metrics, it can become more challenging to fully trust the data and make unbiased decisions based on them. The question often arises: Are these indicators reflecting genuine performance, or are they being influenced by financial incentives?
- Conflict of Interest: The intertwining of personal financial interests with company objectives can give rise to a conflict of interest. In some cases, what is financially beneficial to an individual might not align with what is best for the company as a whole. This misalignment can lead to behaviors that are detrimental to the company’s interests.
In my view, remuneration should fit the job at hand, but motivation systems should reflect both the specific challenges we aim to address and a wider context.
Why are we introducing this motivation system? Are we striving to retain top talent? Are we tackling issues within a particular department? The objectives can vary, and so should our methods for motivating and measuring success. Each of these challenges require thoughtful consideration and can’t be solved in the same manner.
Wider context is also incredibly important. First, we need to understand values that drive the employees. They are likely to be different, and it’s not always about money (that said, please don’t tell employees you are all a family – it’s insincere, you are not, unless it’s literally a family-owned and run business).
Second, we need to be as transparent as possible. Explain in detail why you docked some points in the overall assessment if certain other indicator worries you. Done right, this would also decrease the risk of a metric becoming the goal for the employees.
The Wells Fargo scandal serves as a prominent illustration. The metric was the number of accounts held by each customer, with the belief that more accounts equated to better customer relationships. Unfortunately, this narrow focus on the number of accounts per customer took hold in the minds of customer-facing employees. To achieve what they perceived as the corporate mandate from higher-ups, they began opening accounts without obtaining the necessary consent from customers, leading to a damaging scandal that inflicted lasting harm on Wells Fargo’s reputation and credibility.
The key countermeasure is complete transparency and nuance from leadership, especially the CEO. When assessing performance, a CEO should explain exactly what they liked and what worries them, sparing no nuance. This would likely involve judgment rather than simple numerical metrics. Many CEOs may feel uneasy about revealing their judgments, preferring to remain in the realm of objective, quantifiable measures. However, if CEOs genuinely want their employees to prioritize the same critical areas of concern, they must help their teams comprehend the subtleties and nuances that they, as leaders, pay attention to. The nuances will help others better understand how their actions can contribute to your goals.
