The Incentive System Is not a Substitute for Effective Management

For two decades, I designed compensation and performance management systems for large and medium-sized companies. After two or three years, I was convinced the system would take its course. Those who wanted to do so figured out how to turn things around in their favor and turned what was supposedly a fair system into what was in their best interest.

Note: This article is by Carol Anderson, founder and principal of Anderson Performance Partners, who talks about the importance of good management.

Quantitative performance ratings annoyed me because they enable leaders to set the desired overall rating and then change individual ratings to allow for salary increases at their rates.

Several months ago, The Wall Street Journal published an article about companies learning how to manipulate the results of Glassdoor's polls; companies like SpaceX, SAP, LinkedIn, and Anthem encouraged people to leave excellent ratings, which led to an unusual increase in their ratings.

When executives were questioned about this practice, they acknowledged that on-site ratings do not accurately reflect their organizations, so they reformed them. Those systems that aim to provide valuable and unbiased data can be manipulated.

When designing the compensation plans, I had another unsettling thought: since the plan sponsors wanted to replace the current system with daily supervision, how could we ensure that the accountants would be committed by creating an incentive plan? Do accountants achieve balance?

The plan becomes so complex that we need two employee analysts to jointly track and manage it, be incomprehensible to the manager, and spend more time explaining the plan than correcting misconduct.

There is no substitute for leadership

I see a different strategy. Systems for managing behavior are valued more highly than coaching, feedback, and leadership feedback. In the organization, systems are crucial. They establish boundaries, convey values, and promote appropriate behavior while discouraging actions incompatible with the mission. But it cannot take the place of leadership. As a result, the efficiency for which leaders are expected to perform must be the efficient and timely use of organizational systems.

How can a company create accountable designs so no one can manipulate the data or the results? Here are four ways:

1. Understanding the purpose of the system

Systems must have a purpose to be valid; otherwise, they are a waste of time. As a result, the leadership team must understand the system's goal and the rules put in place to guide organizational behavior; any other purpose is not significant enough. All parties involved in the leadership decision-making process must agree on the goal, expectations, and results before introducing any system.

Take performance management as an example. There are many possible performance management goals, such as equal and fair pay, controlling employee expenses, and investing in the growth and development of the workforce. Each plan requires a clear justification and expected financial impact; remember that every hour invested in the system costs money and needs to generate a profit.

2. Clarity on required leadership behavior

Leaders must be accountable for the integrity of any regulatory system; they must ensure that the system meets the intended goal. For that to happen, they must understand their role as leaders. To continue to manage performance, a leader must be fair and attractive to talent, develop talent, and manage the financial viability of all departments, sometimes in conflict with these roles.

Financial controls or staff expenditures conflict with attracting and retaining the best, but it's no secret that compensation is not a way to engage staff. Leadership behavior is crucial if the system aims to regulate employee spending, growth, and development. Leaders must actively participate in setting expectations, coaching, training, and holding their teams accountable to promote growth and development. If leaders aren't in charge of influencing behavior, how do you expect the system to function?

3. Regularly measure the system integrity

Leaders typically want to lead effectively, but occasionally, preoccupation or personal issues prevent them from taking on significant systemic roles. It's human nature to put off doing things we don't like, and far too frequently, coaching and feedback are on that list.

The proverb "check what you expect" has an advantage because it forces me to step outside of my comfort zone when I know that behaviors like coaching and feedback are being tracked. Additionally, measurement can't just be quantitative because numbers only represent a portion of the exact data.

So, what are the results of other measurement tools?  If the system's goal is to develop and grow the workforce, does the annual survey of employees show that they feel they are developing and growing?

Like performance management, conducting an employee survey is an organizational system that must have a clear purpose, so why bother asking these questions? If the goal is to check the employees' engagement and commitment levels, this is valuable data.

4. Clarity of Purpose

Sometimes, systems are implemented without a clear goal in mind, and what is happening is only the development of administratively cumbersome and unhelpful processes. If systems do not produce the expected results, it is time to return to the basics, setting the goal and leadership behaviors, and create a system that achieves the desired results. Systems without effective leadership may achieve or not achieve the desired results.

The need for strong leadership

When I designed the payroll and performance programs, the plan sponsors moved on to other things that required their attention. I never sought to know if behaviors had changed, and I certainly cared about financial goals, but I rarely cared more to ask why the plan had or had not been achieved and usually only adjusted the system.

About Glassdoor surveys and other open classification systems, technology has opened the door for everyone to have a voice, and it is doubtful that these voices will be silenced. Organizations may not need to manipulate Glassdoor's survey ratings if they focus too much on the systems' goals, hold managers responsible for their actions, and routinely measure the quantitative and qualitative outcomes the system generates. Instead, they might just find themselves doing their tasks.