JOSH LEVINE, NOV 16. 2020: If we care about how work gets done, not just what’s accomplished, we need to change how we measure and reward it.
Operating on outputs. Measuring KPIs. Rewarding sales. Managers point to these activities as best practices, but employees incentivized only by what they do, and not how they do it are liabilities, not assets. It turns out we’ve been managing for only half the job.
When leaders reward outcomes, employees hear “achieve this goal.” But, what they don’t say is also loud and clear, “by whatever means necessary.” Wells Fargo is still suffering through the fallout from the scandal that was the result of its cross-selling initiative. They were explicitly told and handsomely rewarded to sell new products to existing clients. The result? Thousands of fake or new unauthorized accounts.
“People have a behavioral tendency — known as surrogation — to confuse what’s being measured with the metric being used,” explains Michael Harris and Bill Taylor in this Harvard Business Review article. (“Confuse” is a polite way to put it.) In the article, the authors support their thesis with a full breakdown of the incentives that caused the Wells Fargo crises. Unfortunately, neither this management style nor the behavior it incentivizes is an outlier.
The 2014 Volkswagen emissions cheating scandal is another example. The car manufacturer attempted to fool North American emissions tests. Trying to deceive the test itself was a meta-example of this phenomenon, but more insidious was why this cheating occurred. What perverse influence or mandate was handed down to cause the development and deployment of an emissions cheating device? Multiple layers of management must have been aware of, if not outright, approving of this subterfuge directly. 2.7 Billion dollars in fines says it wasn’t worth it.
Maybe once upon a time, companies didn’t care how employees hit their numbers. If it wasn’t illegal, it was fair game — an admittedly low bar that many still fail to reach. But now, customer reviews and social media foster a higher level of accountability. Some brands have even taken to advertising their “how.” Lyft’s It Matters How You Get There, and Bank of the West’s Change Matters are two recent examples.
Bank of the West advertising that their “how” is one reason to choose them over competitors. JOSH LEVINE
For decades, “Sell more, and you’ll be rich” was the charge. Today’s version might be “ship faster” or “capture clicks,” but the message to the employee is the same. The organization has only one immediate need, and it’s the employee’s job to get us there. Solely rewarding behaviors that drive short-term corporate wins over long-term customer benefits can cause severe damage to a company’s reputation.
Trading Long-Term Success For Short-Term Cash
Alex, (not his real name), is a territory sales manager for a medical device company. Like any sales group, he and his team know their paychecks depend on hitting those numbers. Alex has been in this industry for over ten years, and he understands that this month’s sales come from work he put in six to twelve months ago. His success relies on relationships, not just with surgeons who use his products but with everyone who works at the hospitals and surgery centers he services. His job is building trust among all these individuals. When product sales and trust-building align, all is well, but what happens when they are at odds?
Alex explains that not every device or supply he sells is going to serve the patient the best. “I have to make a choice, move a product that I don’t believe is the best solution for the patient, or recommend a better one from another brand?” The conflict between trust and sales can intensify further when his company publishes its annual list of “must sell” items, a subset of about 25 product lines from their catalog of over 100.
Luckily for the company, the surgeon, and the patient Alex is uncompromising. “[The company] is asking me to trade long-term success for short-term sales. I’m just not going to do that.” Others may not be as clear-headed.
Set the rules, reward the results, get the behaviors. Advocating for an inferior product or opening fake accounts, sales professionals play the game to win. Could Alex’s organization reward relationships in addition to sales numbers to strengthen short and long-term success? It wouldn’t be as easy to track, but it is possible. Here are two examples of companies that do.
Recognizing The How
There are a few examples out there of companies that prioritize more than outcomes. Perhaps one of the oldest examples is Disney’s “The Spirit of FRED Award.” Fred was an early employee of Disney when he transitioned from hourly to full-time. It was then a few would-be mentors shared the critical characteristics of the people who worked at the house the mouse built.
Coincidently, the story goes, those characteristics are Friendly, Resourceful, Enthusiastic, and Dependable. Whether or not the origin story is accurate, Disney continues to hand out this award recognizing the people who exhibit these characteristics.
A more contemporary, and scalable example comes from PagerDuty, a San Francisco-based software company that recently went public. Employees and managers here recognize one another for actions aligned with the company’s values. Anyone can post a shout out tagged with the associated value through Slack, or performance review software Reflektive. The post appears on screens mounted throughout their offices — not only in San Francisco, Toronto, and Atlanta. The supportive statements also show up in a weekly email digest.
PagerDuty’s five values: Champion the Customer, Run Together, Ack & Own, Take the Lead, and Bring Your Self. PAGERDUTY
What’s more, each post gets tracked and tallied for employee reviews. Managers can see which values an employee has racked up in the past six months and where they might be lacking. This accounting of employee decision-making becomes the hard data that guides feedback.
What’s Measured Is What Matters
There are many ways to climb a mountain. Setting a goal to reach the summit can inspire, but the destination alone won’t tell you which trail to take. Unfortunately, that’s what happens too often in business. When rewarding only results, even the most talented may choose the wrong route — shortcuts that undermine broader business objectives. In a well-designed culture, the end should never justify the means.
Every business outcome is the effect of how people work. The best way to achieve any goal consistently (and honestly) is recognizing behaviors that lead to those ends, not merely the results themselves. Attempting to shortcut the cycle leads to dangerous choices and dysfunctional cultures. Incentivizing employees to influence the outcome directly is like paying babysitters for how much food they get your kids to eat. It might be effective at first, but eventually, how they do the rest of their job suffers.
If leaders are going to change how they manage organizations, they must recognize and reward values-driven choices as well as outcomes. Pointing out an individual or team will make employees proud of what they did and continue that behavior. What’s more, this approach amplifies the positive effect; when others see positive recognition, they’ll emulate that behavior, too.
If we care about how the work gets done, not only what gets accomplished, we need to change how we measure and reward work. After all, what gets measured gets managed, and what gets managed matters. Rewarding values-driven behaviors is how the best leaders of the future to get the best results from the best people.