Performance Management: Push or Pull Incentives, which do you rely on?

Are your incentive systems based on a push (encourage people to do something like achieve an objective) or a pull (encourage people to deliver a desired outcome)?

A recent artcile in the national Post (18 October, 2011, page FP11) titled “Handbacks,  not handouts” by Neil Seeman explores this issue as it regards governments investing in R&D. Seeman suggests that providing rebates for R&D successes is preferable to providing funds for engaging in specific R&D efforts. The latter is an effort to “pick winners” the former is the provision of rewards for being successful.

I have never bee a big fan of management by objectives because I have observed way too many times the pursuit of these goals even though it is clear they are no longer appropriate. This reminds me of the cliche: “The road to hell is paved with good intentions!” This is a correctable concern if we are prepared to change objectives every-time we get information that suggests that an alternative course of action is preferable. However, this recalibration effort is rare in organizations as the process of setting objectives is often burdened down with an administrative process that is not a lot of fun to participate in. HR professionals really have to own this state of affairs as they are usually charged with setting up these performance management systems. My experiences lead me to the conclusion that HR is more interested in appropriate documentation of goal setting outcomes than it is in the appropriateness of the goals themselves, especially after they are set. The expeditious, efficient and effective recalibration of goals is not a feature I have observed or heard about from others.

There is a fundamental issue built into management by objectives: it is action oriented. Objectives by their very nature are focussed on results not outcomes. An outcome describes a more desirable end state. Outcomes tend to be more stable over time as they are not as prone to becoming obsolete during the course of pursuit.

A performance system that rewards outcomes is more “pull” oriented as it encourages people to find the set of sequential results (aka objectives) that end up delivering the desired end state. The other benefit is we can assess whether our best efforts “made any difference what so ever”. There is an old saying: “Don’t try, do!” I would reframe this to: “Don’t do, get!”

However, there is a risk component to focussing on outcomes based rewards: We also have reasons care about how the outcomes were achieved (harkens back to the road to hell cliche above). Did we achieve the outcomes legally/illegally? This is a crude example of the need to appreciate “how”. This is why we often incorporate the “values” dimension in performance assessment when we do any form of incentive rewards. In an outcome based scheme we would appropriately incorporate the notion of no inappropriate unintended consequences into the desired state description.

If we want to encourage creativity and innovation, we would be better served by looking at how we establish “pull” forms of incentive schemes.

What about recognizing good efforts in the areas of: inputs (often efforts such as making 30 cold calls per day), throughputs (being efficient, team player and smoothness), and results? Performance management needs to acknowledge that at the end of the day nothing is achieved without effort, so we need to understand how we can recognize these three prior conditions along with the outcomes state.

It means we recognize them differently and distinctly along the way. Coaching like recognition is appropriate for the first two (inputs and throughputs). This form of recognition is done in “real time” frequently, and is predominately informal in nature. The “outcome” aspect of coaching level of performance management is to instil effective and efficient work habits. Habits that we understand lead to superior results and outcomes performance.

The latter two (results and outcomes) will incorporate more formal and after the fact forms of recognition. Regardless, the role of informal recognition should never be ignored even in results and outcomes recognition.

The underlying reason I am more comfortable with using outcome oriented rewards based schemes is we live in a world of uncertainty. Management by objectives always makes assumptions about the future and these invariably turn out to be incorrect. This is why we can get so far out of line of where we are versus where we meant to be. I believe we need to establish performance management schemes that make this “navigating recalibration” as easy and efficient as possible. If we don’t we also make the effort to do the right thing less likely.

We are balancing the “where” with the “what” and the “how” and we want to have a scheme that does not create dilemmas in balancing them.


About 123stilllearning456

As a management consultant I am passionately interested in talent management and risk/uncertainty issues. In the area of talent management I propose that we seek strategies that look beyond the staffing/employee centric frames of reference. I have been frustrated at the "closing down on possibilities" by these more conventional staffing/employee centric approaches. I have been impressed where people have found systematic solutions to their talent management issues by going beyond the conventional approaches. In the area of risk and uncertainty, I am interested in making this topic relevant to more normal decision making situations. My conceptual foundation is to use the micro-economist's fixed/variable cost theme. I also think it is important to look at these issues for people through their emotional and psychological lens. As a premise I think risk and uncertainty only exist where there is a person who cares about possible events and its consequences. Hence, risk and uncertainty are social based concepts (no sentience, no risk and uncertainty). A major influence on my thinking in this area is Nassim Taleb of "Black Swan" fame. This BLOG provides me with an opportunity to express my thoughts on topics that interest me. As this is an online diary, content is more important to me than polish. I apologize if this distracts from readers' enjoyment and learning. Still I find this a useful way to live up to my namesake, learn more from others and hopefully provoke creative thoughts and ideas in others.
This entry was posted in Decison Making, Performance Management, Risk & Uncertainty, Strategy, Talent Manangement. Bookmark the permalink.

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