Book Review - Reward Systems: Does Yours Measure Up? by Steve Kerr
Reward and compensation systems are one of the most touchy subjects in a company. People don't like you messing with their rice bowl. But if not done correctly, management may well be measuring and rewarding the exact opposite behavior that they are trying to target. Reward Systems: Does Yours Measure Up? by Steve Kerr does a good job of drilling down to the core components of an effective reward system, and can help you get on track if you're floundering.
The Power of Reward Systems
Step 1: Define Performance in Actionable Terms
Step 2: Devise Comprehensive Metrics
Step 3: Create Reward Systems That Work
What To Do Monday Morning
About the Author
At 136 pages, Kerr doesn't have a lot of time and space for fluff and philosophical ramblings. As such, the material is concise, direct, and ready for application. First, you need to get rid of the fluffy and lofty visions and goals that can't be nailed down in terms of "did we achieve it or not?" If a vision of "become the best company" doesn't have actions and behaviors associated with it, then it just won't happen. Next, set up the measurements that can be monitored and applied to the actions. Here's where many run into problems. It's a popular exercise today to "rank" all employees in order to weed out the low performers. Conceptually, it sounds effective, but it's loaded with landmines. For instance, all salesmen may be ranked against each other. Bob outsells Bill by a 2-to-1 factor. But that ranking doesn't take into account that Bob's territory is populated with high-income individuals, while Bill is selling to blue-collar workers. In terms of effectiveness, Bill might be a much better salesman that Bob, but his territory will never allow him to generate Bob-like sales. If these types of metrics drive the compensation system, you're rewarding things that people have little control over. Finally, the reward system has to meet the following criteria: eligibility, visibility, performance contingency, timeliness, and reversibility. If a reward system does not meet these criteria, it starts to have diminishing returns. For instance, say that there's a company-paid trip to a resort as a reward for "top performers". Many times this becomes an event that the same people attend year after year because of their past history. If that perk is not "reversible", as in the person not qualifying year after year, it ceases to become a motivator both to those who are locked in and those who might like to make it into the club.
If you've read any management books dealing with rewards and compensation, you've likely run across most of this information before. But generally it's not as concise and applicable as what Kerr has done here. Those running large companies would do well to read this and reexamine their reward systems. And those running smaller businesses should *really* read this and look to structure their compensation systems such that employees aren't "demotivated" to perform. What sounds logical may not be effective in actual practice...