WHY KPIS AND ANNUAL BONUSES ARE A WASTE OF MONEY CLAIRE EL MOUDEN
WHY KPIS AND ANNUAL BONUSES ARE A WASTE OF MONEY
CLAIRE EL MOUDEN
Deloitte Seminar, 2013 ‘Motivating top management through well-structured pay’
Appreciation for your workGood relationships with colleaguesGood work-life balanceGood relationships with superiorsCompany's financial stabilityLearning and career developmentJob securityAttractive salary
Interesting job contentCompany values
Boston Consulting Group, ‘Decoding Global Talent’, 2014.
RATIONAL CHOICE THEORY
ECONOMICS
NEUROSCIENCE
PSYCHOLOGY
ECONOMICS
ANIMAL BEHAVIOUR
BEHAVIOURAL
ECONOMICS
EVOLUTIONARY BIOLOGY
NEUROSCIENCE
PSYCHOLOGY
ECONOMICS
ANIMAL BEHAVIOUR
BEHAVIOURAL
ECONOMICS
EVOLUTIONARY BIOLOGY
RATIONAL CHOICE
INFORMATIVErepeated
time to decide can learn what works
instant reward
RATIONAL CHOICE
INAPPROPRIATE
one offstressed
uncertain worlddelayed reward
NEUROSCIENCE
ECONOMICS
ANIMAL BEHAVIOUR
PSYCHOLOGY
BEHAVIOURAL
ECONOMICS
EVOLUTIONARY BIOLOGY
Overconfidence bias
Bandwagon effect
Availability bias
IKEA effect
Confirmation bias
Authority bias
Hindsight bias
Loss aversion
Deloitte Seminar, 2013 ‘Motivating top management through well-structured pay’
PERCEIVED VALUE ≠ ACTUAL VALUETIMING MATTERSWE ARE SOCIAL ANIMALS
MAKE INCENTIVES APPEAR MORE VALUABLEWe are more bothered by losses than gains
‣ “you already have a bonus, just do X to keep it”.
We are attracted by big prizes
‣ instead of £5000 bonus, enter 50 employees into a lottery for £100,000 (costing you £2000/employee)
People value gifts more than cash
‣ instead of a £5000 bonus offer your employee and her boyfriend a 5* long weekend in Barcelona (costing you £2000).
MAKE INCENTIVES TIMELYWe discount the future
‣ Link financial incentives to short term goals
People are more likely to do a behaviour if the costs/benefits are imminent
‣ Remind people when they have 24 hours left to do something.
People are receptive to change long-term behaviours when in transition (e.g. new job, new office, new house)
‣ If you want to new policies that change the office culture to work, switch desks or work schedules at the same time?
MAKE INCENTIVES SOCIALReward employees with social prestige instead of money
‣ public praise (e.g. a plastic trophy)‣ personal email from the CEO
‣ we copy socially prestigious individuals (so reward the right people).
Focus competition between groups not individuals, particularly in stressful periods
People conform to the (apparently) most common behaviour (careful not to make ‘problem’ behaviours worse!)
‣ e.g. “Most employees complete their timesheets on time”
Share rewards with the family, not just the individual
DEFAULTS TIMELY PRAISE
SOCIAL CONFORMISMFUTURE DISCOUNTING
NEUROSCIENCE
PSYCHOLOGY
ECONOMICS
ANIMAL BEHAVIOUR
BEHAVIOURAL
ECONOMICS
EVOLUTIONARY BIOLOGY
THE FUTUREScrap annual bonuses and generic KPIs
Tailor incentives to an individual’s circumstances, personality and goals
Use behavioural insights to communicate the right information at the right time to motivate employees
I’M DONE
NOW IT’S YOUR TURN