Imperfect Incentives
In a recent article, I wrote about the inherent problems with incentive schemes. The simple matter is they involve human beings.
I concluded that it was well-nigh, impossible to design the “perfect” incentive scheme as those incentivised will usually find shortcuts around the system.
On reflection, I realised that this was a cynical and (dare I say) destructive view. Whilst it highlighted problems of which I am sure we’re all aware or have at least experienced in our day-to-day lives, it didn’t offer any guidance as to how to improve the situation.
So, what can we do? The first area of focus, I feel, should be the values of the organisation: what does it stand for? How does it want to be seen? What does it want its customers to say about it? How does it want its employees to treat customers? How does it want its employees to feel about working for it?
Next, consider the behaviours and results that would provide the answers to these sorts of questions. There will be a mix but try to have as many objective measures as possible.
From there, move onto questions like “if we want to see this sort of behaviour, how can we encourage it?” The answer, you will say, is to reward such behaviour.
Remember the caveat though: make sure that it is difficult to shortcut this behaviour and incentive. If you ever want to know how employees game your system, ask them!
We now have the results and behaviours we want and the rewards to encourage them. How do we measurethem? In some cases, it might be easy: there are figures available in the company’s “systems”. Other methods are trickier and involve “customer feedback” - itself inherently flawed, as we’re asking strangers to evaluate behaviours, activities, and products based on their own subjective expectations. For example, what may be “excellent” for one person may be “average” for another. Where possible, a properly briefed “Mystery Shopper” may be the answer.
One thing we can say for certain is that absent incentives, either nothing or the wrong things are likely to happen.
Another point is that, if the incentives are insufficient for “good” behaviour or there is insufficient/no disincentive for “bad” behaviour, again nothing will happen. I have personal experience of this with one job I did where people actually said that the incremental difference between the salary raise they got for a “Very Good” performance rating was barely sufficient to justify the effort required over that which resulted in a “Good” rating.
On top of all this, employers only have a certain amount of money to play with when it comes to rewarding employees (assuming that money is what they value). Yes, “other things” such as praise, time off, or other non-financial rewards can incentivise people, but money remains the key in an age of rising prices. A nice, modern, well, equipped office, free coffee (and even meals), ping-pong, tables, beanbags, gym, memberships, childcare, facilities, medical and dental care, all help but I’ve worked for organisations that have compensated people both with just salary (and a high one), allowing employees to decide what they spent it on as well as for employers who paid lower salaries, but then gave the benefits-in-kind above as part of the “deal”.
It's up to employers to decide how they to reward their employees (particularly good ones) as well as to employees to decide whether they want a higher financial reward and decide how they spend it or whether they accept a lower financial reward but to have, say, funded healthcare, dental care or childcare. The latter for working parents can be a critical factor.
Conclusion: each employer is going to have to mix and match, depending on the market in which it operates, how its competitors compensate their employees, the culture of the market and innumerable other factors. Getting it right, will continue to be a guessing game and requires a high degree of flexibility, understanding, and insight.
To this mix, we must factor in changing generational aspirations. Some workers will naturally value certain elements of compensation more than others, whilst their younger colleagues may show different preferences. In short, poor old HR not only have to manage an incentive scheme, but one that responds to the needs of different generations!
I suspect that in the end money will remain a prime consideration.
I am more than willing to be proved wrong. I do not want to accept that only money is the way forward.
I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.
Labels: Career, Financial, Productivity, Strategy
Will Handwriting Become Obsolete?
As time goes on, I find that I increasingly turn to voice recognition software for a number of my routine tasks.
This article, for example, was dictated into the “Notes” app on my iPhone, copied to a WORD document for final editing and formatting, then copied and pasted to this blog.
In one day alone, I drafted six articles using this method. The main reason was that I had decided to work from home on that day, so I was in an environment where I could happily talk into my smart phone’s microphone, and no one would think that I had lost control of my faculties!
I'm one of the generation who was taught to write first with a pencil, and then with a fountain pen. I remember my teacher being highly disparaging of ballpoint pens (“Biros” as they were commonly known at the time). In her opinion, and I believe she was right in this, biros did not result in good script. There is something about the slightly increased friction of writing with either a pencil or a fountain pen that provides more control of one’s penmanship. That said, some people can write neatly in ballpoint, so I guess it depends on the user.
Fast forward to the 90s when my son was born. He, unfortunately, learnt handwriting from a number of different teachers each with a different style and therefore writing became a trial to him rather than a pleasure or something to be used “second nature”. He far prefers to use a keyboard and can use one extremely well. He is also very articulate when he expresses himself in writing (or should that be in “keyboarding”?)
One advantage of the new voice recognition technology is that it enables those who may not be able to write (e.g. because they're physically handicapped) to communicate with the written as well as the spoken word. We can also speak into translation apps and communicate with people in another country (perhaps at times with unpredictable results).
Be that as it may, I still believe that there is a place for teaching handwriting in schools. Not as some old-fashioned, traditional, oppressive system, but rather as a means of expressing one’s creativity and artistry. My daughter writes extremely well (I am talking about handwriting in this sense), as well as creatively. Her school essays and short stories were a joy to read. Like many of her generation now, she uses a keyboard at work. Fortunately, she works in PR and excels in this industry!
Not all of us, even those who were taught to write the “traditional” way (with pencil and then with a fountain pen) will necessarily have good, let alone, legible, handwriting. I remember one amusing story my mother tells of a shopping list my father had given her. One of the items on the list was “snoozle pins” (or that’s what it looked like to my mother!)
My mother hunted high and low for the elusive “snoozle pins” but without success. When she asked my father on his return, what these were he looked blank until he saw the list and replied “Oh, shoe repairs!”
It is cases such as these that make for variety and spice in life. Had my father typed the list out and then emailed or messaged it or printed it for my mother there would have been no misunderstanding. However, as I said before, this is what life is made of. We will all be aware of stories of how illegible the handwriting of doctors is, and the difficulty that pharmacists and nurses have interpreting the instructions and prescriptions they write.
Be that as it may, I do fear that handwriting receives less emphasis. This will be a shame and possibly even a problem in the future, as we cannot always turn on our smart phone, open a Notes app, and then dictate a quick note, instruction, description, and so on. It is often much faster to grab pen and paper and scribble it down as it comes. Indeed, at my school, a method used by one teacher was to dictate notes to us in class. We learned not only to write quickly, but also to listen, memorise, and at the end of it all be able to read our notes!
I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.
Labels: Leisure, Productivity, Social
Ineffective Incentives
I’ve just read an article on the state of the U.K.’s National Health Service (NHS), the problems it faces and how they might be fixed.
One of the major problems identified is that the wrong activities incentivised. This means that the NHS gets paid for treatments and activity rather than results. Focus is on crisis management, not care and prevention.
It made me think: most organisations have some kind of “incentive scheme”. The idea behind these is that employees will be rewarded for displaying the correct behaviour or being successful in certain activities.
The problem is it becomes too easy to “game the system”. As has become apparent in the NHS, to keep or increase budgets, hospitals are performing unnecessary treatments towards the end of life for some patients and their conditions.
Similarly, one of the root causes of the global financial meltdown that commenced in 2007 was the way that traders in Collateralised Debt Obligations were rewarded for their sales. In short, the system there was driven by greed.
Another example can be found in the complaints and court cases about UK lenders selling “Payment Protection Insurance” (PPI) to customers who took out mortgages with them. The idea of PPI was that, if the customer lost their job or was otherwise unable to make their mortgage payments, the insurance would cover the debt. However, it appeared that this insurance was not being sold in an “ethical” manner, was being sold to those for whom it was not suitable or was being sold without even the knowledge of the customer that it was being sold to them. Result: banks found culpable were ordered to reimburse customers millions of pounds.
The reason behind performance management and incentives is to ensure a business‘ continuing success as well as the development of future leaders. That’s natural and understandable. However, incentive schemes need reward the right outcomes, and not simply those who find ways to beat the system.
My own experience showed me clearly that often, people spend more time in “fudging figures” than in meaningful activity that results in the outcomes desired for the company. This is only natural! Human beings are psychologically predisposed to expend minimum effort for maximum reward. If there is a way “around the system” they will find it.
This means that it’s often impossible to design a fool proof or tamperproof incentive scheme. The only way to minimise this kind of tampering is to police regularly the way people are being assessed or to change incentivisation frequently enough that it becomes unproductive to find novel ways of gaming the system rather than turning in the performance levels required.
The other major problem with incentive schemes relying on inputs is that people indulge in what we know as “box ticking exercises”. One of my clients told me about a situation where employees were required to submit a certain number of a certain type of report every year. The result was that they found any excuse to submit such reports whether they were about genuine or fanciful issues. Not only that, but they were “recycling” reports submitted two or three years before for the current year to ensure that their numbers remained constant. In the intervening period, it was likely that either the manager would have forgotten that they had submitted the same report two or three years previously, or that their manager had moved on, or those further up the line had also changed and were now in different positions.
The only satisfactory solution might be to focus on outcomes instead of inputs. For example, if you wish to increase business, you might consider an incentive by business function of either reducing the incidence of customer complaints (and by customer, I mean internal as well as external) or increasing positive ratings from customers (again, internal and external) for good service. The problem, then, of course, becomes how you define “good service”.
In short, it seems obvious that it is well-nigh, impossible to design the “perfect incentive scheme”. In a small business, it may be easier to monitor the activities of a few employees all working within earshot of the boss. In a larger organisation with hundreds, if not thousands of employees and a remote HR department, this may border on the impossible.
This is compounded by the fact that individuals, team leaders, and department heads are all under the same pressure: to perform, and preferably, perform better than they did last year. I remember once been told by a team leader “you live or die by your numbers”. When you have a mortgage to pay and a family to look after, it’s only natural that you do whatever it takes to fulfil that duty. If that means bending the rules, so be it!
One can only accept that there will be a degree of abuse, but as long as this can be effectively policed, we may have to live with it.
I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.
Labels: Customer Care, Leadership, Productivity, Strategy, Teamwork
