When I work with companies, I suggest that they compare their reward systems to a critical path–linked framework. In keeping with the exhortations of Steve Kerr, author of “On the Folly of Rewarding A, while Hoping for B,” rewards need to: 1) incentivize exactly the behavior that you want; and 2) be correctly appropriate for that behavior.
For starters, let’s review the types of behaviors. As discussed earlier in Lesson 28, we can distinguish between inputs, throughputs, outputs, and outcomes. Inputs and throughputs are what most people would consider employee “effort.” Does the individual come to work and do what we expect him or her to do day-to-day? Are they using the inputs that qualified them for the job in order to execute their work tasks effectively? In other words, do they come to work on time and put in a full day’s work in a way that we expect and find acceptable?
Outputs, as we saw earlier, are the tangible work products that are part of the critical path. They are the “results” of the preceding throughputs.
Value-added outcomes tell us if those results actually made a difference to the bottom line.
Here is an example. Grace worked as a researcher at a major pharmaceutical company. She was tasked with developing a new and better ovarian cancer drug that had more benefits than the market-leading product and fewer side effects. She was given a budget of $35.7 million budget and a seven-year time frame to produce the new drug. Her input and throughput “effort” consisted of doing all the bench science and clinical trials necessary to see if the drug worked (or didn’t). If she met all the company’s specifications, i.e., a better drug within 7 years and within budget, then she produced an acceptable output “result.” Should that drug sell well in the marketplace and produce a profitable return on the investment, then Grace made a “value added outcome” to the company’s bottom line. If it doesn’t make any money for the firm, then she has put in the effort and achieved her assigned result, but she cannot claim any value-added outcome.
Already, you can probably see some of the challenges of designing an appropriate rewards framework for someone in Grace’s position. Inputs and throughputs are a significant part of the behavior the company wants to incentivize, but what they really want is a hot-selling drug that provides a strong return on investment. How would you design rewards for someone like Grace in order to incentivize both outputs and outcomes? What manner of reward would be correctly appropriate for the behavior and performance you want Grace to deliver? (And what kind of rewards structure should Grace favor?)
Complicating the situation is the question of also factoring in team- and organization-based rewards, which we will look at next before returning to look more closely at Grace’s situation in Lesson 35.
Critical Path Action Items
Using your work from Chapters 28 to 31:
Write down your “effort” (inputs and throughputs) for your job and, if you are a manager, the jobs in your department
Write down the expected critical path “results” (outputs) for your job and, if you are a manager, the jobs in your department
Write down the expected critical path “outcomes” for your job and, if you are a manager, the jobs in your department