Book by Neel Doshi & Lindsay McGregor
Reading notes by Yan Tougas
Compensation is the most misunderstood key to culture. Too many managers believe that performance-based pay is the key to motivation. The reality is that this is true only in some cases. If the compensation threatens adaptive performance and cooperation, the whole company can suffer. A better compensation system rewards people for learning new skills.
Money is a poor motivator but it can be an effective “activator”, overcoming one’s inertia, convincing someone to leave his/her current job for a better one. At the same time, performance-based rewards tend to cancel out the natural sense of play. People hesitate to experiment because failure means less money. Performance reviews linked to compensation create a blame-oriented culture. It’s better to focus on learning skills and mitigating weaknesses.
Below are nine questions to help you determine if performance-based compensation is good for your organization. The more times you answer no, the more damaging it can be to your business:
Are adaptive behaviors important?
1. Is the job routine, with very little VUCA?
2. Do your people face no conflicts of interest?
3. Is your company insulated from the financial and reputational risks that come from an individual’s distraction, cancellation, and cobra effects?
4. Is teamwork unimportant to drive the highest levels of performance?
Will your compensation system reduce total motivation?
5. Can you fairly measure important behaviors, especially adaptive behaviors?
6. Can you determine the value of the behaviors you care about?
7. Are your people resistant to emotional pressure, economic pressure, and inertia?
8. Is ToMo naturally high in your company?
9. Is it easy to align incentives between your customers, your employees, and your company?
If you answer no too many times, you may find that an investment in culture building yields higher performance dividends than pay-for-performance.