Avoid employee rewards that undercut your business goals and overall performance

by on May 12, 2009 · 0 Comment POSTED IN: HR Info Center

Broad based performance metrics for employee rewards creates a better overall contribution

When individuals or teams are rewarded in a way that undercuts the organizations business and financial goals, economists call it “sub-optimization.” Examples abound where the employee rewards undercut overall performamce:

  • A software-development team that gets paid a small bonus for each software “bug” it finds. The team is rewarded not for preventing bugs through sound programming practices, but for finding bugs afterward.
  • A product-development team is rewarded for meeting a tough deadline, but hasty production leads to defects, which increases maintenance costs in the field.

The right metrics for employee rewards can be difficult to find
Finding the right mix of rewards is of course no easy trick, but some companies are finding success by rewarding employees based on economic drivers.

For example, Nucor Steel knows its key economic driver is profit-per-ton of finished steel. The company doesn’t reward for on-time opening of a plant or innovative processes – just for things that improve that key metric.

Note that the driver measurement is at a high level of company operations and is easy to understand. Nucor found that with a broad goal, workers will contribute beyond their individual jobs and look for opportunities to improve processes everywhere and anywhere.

Source: Based on “Unjust Desserts,” Better Software magazine, July/August 2004. HR 3.22

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