Most companies pay most people for individual effort. If you show up on time, dress and act appropriately, and then do what you are assigned to do, you are very likely to get your weekly paycheck. As we saw earlier, once a year or so, you will be evaluated against a PE system that measures and rewards competencies, attitudes, and behaviors—not results and outcomes. More than likely, you will be looked upon favorably if you’re a team player, but it is unlikely to alter your compensation much. If you or your team do achieve some results, this might garner you a small bonus that is unlikely to make much difference in your compensation. Based on many companies’ compensation plans, on average, the difference in pay between the star performers who produce value-added outcomes and the lowest performers who only provide effort is about 5%.

Using our framework, let’s be generous and say that a company pays employees 90% of their total compensation at the individual level for effort. The remaining 10% is split between team-level performance and result outputs. As the framework shows, in effect, we can break down employee pay at most companies as follows:

81% for individual effort
9% for team-level effort
9% for individual results
1% for team-level results
0% for any organizational-level performance or value-added outcomes

No doubt you can imagine the effect that rewards will have on the critical path. Employees will work hard to demonstrate that they are putting in the effort required for their individual work and on the teams to which they are assigned. Everyone will opt for “busy is easy” because their pay depends on it. As for critical-path outcomes, few, if any, employees will work very hard toward those because there is no reward in doing so. To paraphrase Steve Kerr, when you reward individual effort, do not expect value-added outcomes.

Critical Path Action Items

  • How does your organization proportion its reward system given the above matrix?

  • How much of your compensation is determined by individual effort, results, or outcomes? If you over-achieve or don’t achieve results or outcomes, how is you compensation altered?

  • How much of your compensation is determined by contributing to team or organizational effort, results, or outcomes? If team/organizational results or outcomes are met (or not met), how is you compensation altered?