Why you shouldn’t link KPIs to reward or bonus systems
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- เผยแพร่เมื่อ 5 ก.ย. 2024
- In this video I outline why you shouldn’t link KPIs and business measures to reward or bonus systems, because it will drive dysfunctional behaviours.
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Thanks for watching!
I'm doing my master thesis about the effect of KPIs on remuneration and this really helped, Thanks.
Hello Bernard,
thanks for the video.
Completely agree with the danger to make hard-wire linking between performance KPIs and bonuses but my question will be if we use the overall company performance or something like TSR to indicate relative performance against competitors it could be unfair as some individuals helped the company a lot to achieve the goals/targets while others didn’t do as much. So how to do you still make a reward based on individual contribution not only company performance and at the same time don’t link it directly to KPIs.
The rat issue is actually of a type of a system issue called a 'Cobra Problem'
I agree to a large extent, Thanks
I am a bit lost on what to do. You say to remunerate on performance, but KPI means Key Performance Indicators, so then how do you measure performance and reward accordingly? I guess we hire you to find out.
They key is to not hard-wire pay to specific KPIs, but rather use a selection of KPIs plus contextual assessment to identify rewards.
The idea of not linking KPI to bonus is great but for all the wrong reasons mentioned.
First, you focus on wrong KPIs in the example of the CEO and profits. What if KPI for the CEO would be different, say, EV?
Second, your example with the airport baggage is also quite wrong as it might be interpreted as a wrong measurement approach rather.
The idea of mapping KPIs to bonuses is wrong because of
1. People are not driven by money (well, not all). And when it looks like they are, you can re-think their salaries first.
2. Bonus is not the only reason people achieve extraordinary results.
3. You need KPIs to run and to improve the system, but first of all, the system is not static and changes more often than KPIs
You have people that cheat the system or an area will have an super easy area or job to do so win these competitions all the time
Basically what happened at my job. Worked with language markets, the ones working with the Dutch did a lot better than the ones working with German, because Dutch people are a lot friendlier and therefore were an easier target.