« Repairing Performance Management | Main | Executive Compensation: What the Conversation Can Tell Us »

10/08/2012

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83451df4569e2017c323ab2b5970b

Listed below are links to weblogs that reference Incentives Before the Fact?:

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

The idea of giving managers their bonuses (at target) at the beginning of the year when goals are developed and then a portion, or all of it taken away at the end of the year if some or all of the goals were not met is interesting on paper.

The biggest challenge I see is the manager actually taking the bonus away throughout the year. Most managers I have come to know lack the intestinal fortitude to actually hold employees accountable - particularly at this level.

Excellent post!

Was that a different study from the ones cited by Dan Airley in "Predictably Irrational"? I like it because it lights an internal fire not usually reached by conventional incentives paid after the fact.

It's only different in degree from declaring that you may lose your job if you fail to perform adequately. But I might apply it theoretically rather than literally: display the promised money rather than actually award it in advance. Let the earned bonus entitlement diminish throughout the bonus period rather than demand a cash withdrawal from the family bank account. Pre-announcing the bonus anticipated at 100% goal attainment levels can activate the family, too, as they "pre-spend" the award mentally. It activates a much broader audience more closely examining actual progress towards intended objectives. As an extra plus, it forces constant improvement of the goal targeting and feedback mechanisms. After all, don't you WANT people taking their bonus targets seriously?

Precisely because this approach can have greater impact if aggressively communicated, I'd dial down the BHAGoal index quotient for the first few evolutions. Tinker with it to meet your comfort level.

Thanks Chris. Yes, intestinal fortitude always gets in the way of a neat theory! How about managers that don't want to give negative feedback on performance appraisals??

Ed --- didn't know about the article you refer to. I'll find/read it. I like your idea of getting the family involved. Nothing beats a "nagging" spouse right?!

And . . . I'm sure everyone else understands your "famous/infamous" acronyms, but I don't. So what does BHA mean? While you're at it why don't you just send me your whole dictionary of acronyms because the issue keeps coming up for me!

If I had invented the acronym, I'd have referenced a link to the definition. It's pretty well known in the performance trade as Big Hairy Audacious, but I'm too polite to spell out such a term. ;-) Hope you weren't trying to swallow your coffee when reading that.

Pink copied Airley's book style but lacks his academic research credentials.

P.S., the E is for Emmet James the Third, so I never use the E name except on legal documents. Jim will always do.

I guess he doesn't know many state laws. While the clawback is required by Federal law, several states do not allow money to be taken back once given to employees. Sometimes you can get the employee to sign a document up front for the pay back, but this doesn't even fly in most states.

Also, how do you handle those employees who leave before the target end period? It can be hard to get the money back from them (ever try to get tuition reimbursments back?).

This bonus system recognizes that not everyone is motivated by money. However, just about everyone is concerned about saftey/house/etc.

Thanks Lisa. Yes, this is another one of those "great in theory" but not "in practice" kinds of ideas.

You pointed out some important issues ---- how to get money back when employee terminates, etc.

Well Ed --- I bow to your superior knowledge --- when you say "Big Hairy Audacious" is well known to people. Guess I don't "hang out" in the correct circles.

No I don't drink coffee. Diet Coke is my caffeine of choice.

As others have mentioned... getting the money back is an issue. However, I posited last month in a post on my site - maybe if you used non-cash awards (ie: points, credits) as part of a short term incentive this is a workable solution?

http://www.i2i-align.com/2012/08/harvard-profs-must-be-reading-my-posts-incentives-and-loss-aversion.html/


Jacque - Interesting concept, and worthy of discussion, as the thoughtful comments submitted thus far attest to. My initial reaction was the same as yours; negatives outweigh positives, claw back issues, etc. However, if you think of it in a more holistic context, it becomes quite appealing.

Group incentives, where all members participate in the incentive program, perhaps at different levels depending upon position, function, etc., might work more effectively using this method. Under traditional incentive programs, it's the pot at the end of the rainbow theory of motivation. If the company put in some skin up front, it crystallizes for the participants the importance of achieving their goals, and might more effectively focus all members of the group to collaborate and help each other out. You can argue that it might be more stick than carrot, but if its all for one and one for all, well, maybe it's worth additional thought.

John I agree with you about the team concept and have seen it work fantastically but only if the goals are not dependent on direct reports. In other words use this for non-managers. Otherwise I'm afraid of the pressure that would be put on the employees to perform, perform, PERFORM!!!

I've seen group incentives work for individual contributors. Yes peer pressure does work, they collaborate, help each other out .... it's great. Just worry about the idea of using it with managers. As Chris said -- most managers I have known haven't been great at "managing" instead of browbeating and "micro-managing".

Jim --- sorry, can't believe I called you Ed. Guess I can blame it on being Monday!

Paul -- great post. I guess great minds . . . You beat me to it.

You can consider that this concept is at work with certain stock awards, e.g., restricted stock. Without a performance element, there is the desire to avoid seeing the stock price decline prior to vesting. With a performance element, the full target value of the award can be easily tied to individual or group performance (and not as subject to the vagaries of the stock market).

Paul et al ---- who was it --- Frederick Taylor??? --- that posted each employee's performance at his/her work station fully visible to all. It was a chart or color-coded ??? thing. And it was done at the end of each day.

The comments to this entry are closed.