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Myth #5: By tying KPIs to pay you will increase performance

September 19, 2013

This is the fourth in a series of blog posts by guest blogger and Decision Day 2013 Key Note Speaker David Parmenter examining the six most common myths related to performance monitoring.

It is a myth that the primary driver for staff is money, and thus, one needs incentives in order to get great performance. Although this is the case with employees who are sitting in the first two rungs of Maslow's Hierarchy of Needs, it does not apply to many managers or staff. Recognition, respect, and self-actualization are more important drivers. This factor has a big impact on how we treat KPIs.

In all types of organizations, there is a tendency to believe the way to make KPIs work is to tie KPIs to an individual’s pay. I believe KPIs are so important to an organization that performance in this area should be treated as a given, or as Jack Welch says, "a ticket to the game." When KPIs are linked to pay, they create key Political Indicators (not Key Performance Indicators), which will be manipulated to enhance the probability of a larger bonus.

Because KPIs are special performance tools, it is imperative that these are not included in any performance-related pay discussions. KPIs are too important to be manipulated by individuals and teams to maximize bonuses. Although KPIs will show 24/7, daily, or weekly how teams are performing, it is essential to leave the KPIs uncorrupted by performance-related pay.

Performance bonus schemes, using a balanced scorecard, are often flawed on a number of counts:

The balanced scorecard is often based on only four perspectives, ignoring the important environment and community and staff-satisfaction perspectives.

The measures chosen are open to debate and manipulation.

There is seldom a linkage to progress within the organization's critical success factors.

Weighting of measures leads to crazy performance agreements such as the one in Exhibit where the message is "find a way to manipulate these numbers and you will get your bonus." The damage done to the business by such schemes is only found out in subsequent years.

Exhibit - A Performance Related Pay System That Will Never Work.

challenging the myths - part 4

This is the fourth in a series of blog posts by guest blogger and Decision Day 2013 Key Note Speaker David Parmenter examining the six most common myths related to performance monitoring.

You can read posts onetwo, and three.

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