Your employees aren’t performing the way you’d like? Author Steve Kerr says the problem may be your reward systems. Most businesses are replete with undesirable behaviors that stem from disregarding the fundamental principles of organizational reward systems. Figure 1 (page 64) shows some common dysfunctions along with their predictable consequences. 

A defining characteristic of any good reward system is that it gets you what you want. Maybe you’re a big fan of the behaviors described in Figure 1, but my guess is that those are the kinds of behaviors that drive you crazy, and you’d put a stop to them if you could. Actually, there’s an excellent chance you can, but the first step in solving any problem is to define it correctly.

To most managers, it seems obvious that the fault lies with employees who are deceiving their boss, manipulating their numbers, and competing with their colleagues. That perspective oversimplifies the problem, tantamount to what B.F. Skinner has labeled “blaming the rat.” 

Skinner coined the term to describe the frustration he felt in the early days of his career as he ran experiment after experiment and could not get his rats to do what he wanted. He recalled screaming at them, “Why don’t you behave? Behave as you ought!” Later on, he reports, he had a painful insight: his rats were behaving! He had been designing his experiments poorly, and his rats were responding rationally to a flawed reward system. 

Once he got his reinforcement contingencies to function properly, his rats became predictable and controllable.

It seems bizarre to imagine a distinguished scientist screaming at laboratory animals, but that’s not very different from what many senior executives do. They (inadvertently and often unknowingly) devise reward systems that discourage the behaviors they want and reward the very actions that drive them crazy. 

Viewed through this lens, the bad news is that you are responsible for the dysfunctional behaviors that so bother you. Like Skinner’s insight, this is painful. But the good news is that if you’re causing it, you can fix it—and without adding head count, upgrading IT capabilities, engaging consultants, or altering the personalities of your people. 

Getting reward systems right

Since 1970, I have spent 13 years as chief learning officer (CLO) for GE and Goldman Sachs; 23 years on the faculties of Ohio State, the University of Southern California, and the University of Michigan; and three years as a business consultant. 

In addition to being CLO, I was GE’s head of leadership development for seven years during Jack Welch’s tenure as CEO, including responsibility for the company’s leadership development center at Crotonville. 

During my time with GE, I hosted senior leaders from hundreds of companies and spoke to numerous executive teams about the systems, processes, and values of the company. Many of my guests were particularly interested in GE’s approach to setting goals, monitoring progress, and motivating and rewarding its employees.

To get my guests thinking, I would often begin by saying, “My job this morning is to unimpress you. You’re not going to hear me brag about our superior IT systems, our army of consultants, or our secret theories of motivation because we don’t have any of those things. I’m also not going to tell you how to spend large sums of money you probably don’t have. What we do well at GE are the basics.” The basics were three things: 

  1. Operationally defining what we meant by performance—converting our values, mission statements, and strategies into tangible goals (including stretch goals) and then converting those goals into actions 
  2. Devising comprehensive metrics that tracked our actions and assessed progress toward our goals 
  3. Creating financial and non-financial reward systems that met employees’ needs, reinforced our metrics, and aligned the company’s goals with the work our people were doing 

Although only one of those points explicitly refers to rewards, together they constitute the key components of an effective reward system. Each is essential in its own right, but it’s equally important that they be addressed in that particular sequence. 

This means that rewards must be the third thing you work on. Metrics come second. Defining performance and making your definition operational must come first. 

If there are things you’d like your people to do that you think can’t be rewarded, you’re wrong because anything that can be measured can be rewarded. If you’d like some things done that you think are impossible to measure, you’re wrong again. You’ve probably neglected to operationally define what you want because anything that can be described in actionable terms can be measured.

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