In the early 1990s, HP added a bonus system, with was “highly experimental” for the HP culture of the time. The plan tied 10-20% of worker pay to team performance. The results?
“The experience of Hewlett’s San Diego production unit was typical. Management set a series of production goals for several teams, and based their workers’ pay on three levels of rewards. … Achieving Level 3 status meant each worker on the team would receive a bonus from $150 to $200 for that month. For the first six months, nearly every team hit the two highest levels. Good for employees, who were suddenly — if briefly — flush, but bad for the bottom line. Management found itself paying out more than it had expected, so it adjusted the target numbers upwards, essentially moving the goal posts during the game. A bad mood began to set in.
“High-performing teams refused to allow workers they saw as less experienced join them. Less movement between teams meant that less knowledge was shared or transferred among employees. Workers who bought cars and new homes had trouble paying loans when they could not achieve their numbers. The whole experiment grew increasingly messy, and workers became irritated. It became a sort of vicious cycle: Employees focused on doing what they need to do to gain rewards — and that just feeds their self-interest even more. In short, people chase the money — often, Beer says, “at the expense of doing other things that would help the organization.”
As I’ve said before, that’s a key problem of incentives -- you are pre-directing effort in a way that eliminates the need for creativity and can actually discourage innovation and the desire to give additional discretionary effort - often with unintended consequences. Incentives are all about the prize – the reward.
Recognition is all about the praise – the after-the-fact acknowledgment and appreciation of exceptional effort. Strategic recognition goes a step further to tie this appreciation to a company value or strategic objective, ensuring employees are demonstrating those values in line with your company mission and goals.