Past Book Review (December 13, 2008): "Reward Systems"

Past book review (i.e. posted prior to starting this blog) for Reward Systems: Does Yours Measure Up?, by Steven Kerr, Harvard Business School Press, 2008, reposted here:

The core content that Steve Kerr presents here is a simple, effective process to improve the corporate reward system in three high-level steps: define performance in actionable terms, devise comprehensive metrics, and create reward systems that work. Before these steps are presented, the author provides a background to this material by discussing how a reward system can be used to get what one wants, arguing that although "the basic principles behind a successful reward system are as well known as putting out the monthly payroll, and doing it well is actually less expensive than doing it poorly, these principles are usually violated, even by managers who perform their other duties competently" and there is "a huge competitive advantage to be had by doing it well".

The table that accompanies this discussion, "Dysfunctional behaviors resulting from faulty reward systems" is especially effective. For example, organizations want innovative products and new ideas, but they tend to reward employees who don't make mistakes, and often get risk-averse behavior instead. Using an illustration from the research of B. F. Skinner, Kerr explains that "'blaming the rat' underlies this book's most important purpose, which is to change your definition of the problem. Instead of saying, 'My people aren't motivated and it's not my fault,' you'll say, 'My people – at least, the great majority of them – aren't to blame for the things they do that I don't like; it's my reward (and measurement) systems that are at fault.' Viewed through this lens, the bad news is that you are responsible for the dysfunctional behaviors that so bother you. Like Skinner's insight, this is painful. But the good news is that if you're causing it, you can fix it[.]"

The discussion of the first step in this process centers on the bull's-eye exercise puts into actionable terms for an employee any mission or vision statements or principles of a firm. For the second step, Kerr discusses commonly used ranking systems such as quartiling, bifurcation, and quotas, and explains that rather than being matched against coworkers, employees need to be assessed according to articulated standards for assessing performance, setting compensation, and considering promotions. The bulk of this book is contained within this chapter, including an extremely well-written section with practical (and often entertaining) examples on measuring the right things, beginning with an important sidebar on objective versus subjective metrics.

Additional discussions in this chapter include the measuring of everything that is important, and both anticustomer and customer-friendly metrics. The chapter on the third step includes discussions on how to reward things the right way (financial, prestige, and job content rewards are examples of what many firms currently grant), as well as how to evaluate such reward systems. With this book, Steve Kerr provides a compact, highly readable essay that almost anyone in the workforce can benefit from reading, from leaders evaluating their teams to employees of firms attempting to understand how their workplace might reward individuals to job seekers evaluating their next opportunities. Well recommended.