It’s not you – it’s me: Taking a new look at reward structures and the behaviours they encourage

Traditional ways of managing performance have taken a bashing over the last 5 to 10 years. We all know the old concept of annual reviews and aligned bonus incentives, in the main, don’t work effectively, yet most of us still are retaining some sort of the same structure in how we reward and recognise our teams.

What’s the problem with traditional reward structures?

Broadly speaking, they don’t encourage the behaviours the organisation actually seeks. You could end up with a ‘high performing’ employee that is totally out of alignment with your own value system, as they may be favouring short wins or the narrow focus of only their role remit just to hit those all so ‘important’ targets.

As Steven Kerr argues in his well-known article on performance management, “On the Folly of Rewarding A, While Hoping for B”, the approach of setting KPIs and rewarding people for hitting them is one of a number of common management reward “follies”. In simple terms, he argues that relating bonuses to fixed objectives, creates an environment that “achieves goals”, but never sets challenging stretch targets, actually unknowingly rewarding the behaviours that these businesses are trying to change. It’s an interesting point, and common sense when you look at it in context. If you set in place a system where to receive a bonus, all you need to do is meet set KPIs, you’re limiting not only performance, but creating an environment where people fixate on certain objectives over all others as a way of achieving a periodic boost in pay.

Think about how YOU can shift this dynamic – work backwards

KPIs are where a lot of performance management and reward frameworks unravel. Unfortunately, most of the time, the factors that will decide whether someone gets a bonus in finance will likely revolve around metrics such as timely delivery, job completion, and as Kerr illustrates, “making the numbers”.

You are perpetuating this if you lead with this mentality. No good saying “I wish Joe would look outside of the box more”, if you’re targeting his bonus on volumes of invoices processed per day. Instead, start with your end-goal. As a finance leader, what are you looking to achieve as a priority? Perhaps it’s an improvement in the quality of financial data, or the establishment of a continuous improvement environment to identify ways to streamline business processes and reduce the month end close?

Think behaviour, not output

The trick to creating a reward framework that enhances team performance is to reward the behaviours that will achieve these outcomes. Once you have defined your objective clearly, as above, start to think about the behaviours that will underpin this.

Let’s go back to Joe. You need someone who thinks outside the box, and outside of their role remit. What structure do you have in place to reward him if he suggests and then owns the delivery of an automation opportunity to improve the accuracy of month end close? Or to reward him if he doesn’t just deliver the monthly management pack on time, but actually proactively develops a new dashboard for customer analysis that helps the sales team to easily identify unprofitable accounts?

These are behaviours you want to encourage in Joe, but may not be doing so right now.

Think about establishing a reward structure that recognises Joe’s proactive activity over ‘completion’ of tasks, for example by targeting him to initiate and lead 3 mini-projects per year – falling with certain parameters and aligned with your objectives?

Above all, think beyond KPIs. Understanding how to utilise your reward system to cultivate the behaviours you really want to see is a key part to enhancing team performance, not only in the short term, but also for long-term success.

Read more: Kerr, S., “On the Folly of Rewarding A, While Hoping for B”

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