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Reward Systems: Does Yours Measure Up? (Memo to the CEO)

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After over forty years of experience in large and small organizations, I have been on both sides of rewards, both receiving them and being passed over for them. If there is anything this experience has taught me, it is that in general, corporate rewards offer little on the positive side and a lot on the negative side.

There are several issues missing - or at least not fully realized, in this book, though it does contain some very true insight into failed rewards systems, such as those that start out claiming to reward outstanding performance but degenerate into mere attendance contests (a sure sign that management is either too busy, lazy or out of touch with its employees on a personal level).

One of the missing issues is favoritism. People are human, whether they are CEOs or the custodial staff and they respond more positively to those who make them feel good about themselves. They also cannot help but become somewhat biased toward those they know over those they don't know. That is why the first people in a large organization to receive awards are those in their immediate field of vision -- a phenomenon I have witnessed time and time again. Kerr does allude to the fact that, even in a quantifiable reward system, it must be taken into consideration that the playing field is not always level for the candidates -- but what also factors in is that the "favorites", or to put it more charitably, the "high-profile" persons, are often going to get the better chances?

That is not to say that this book does not have value. Kerr does acknowledge flawed systems and, most importantly, points out that there are employees being rewarded for the wrong behavior. There will always be people who figure out how to work the system. That is absolutely true. Some terribly horrendous people who make life miserable for those around them and are a drain on both morale and company resources are given awards, making those awards mockeries of their actual intent.

Another very important point Kerr makes is that saying "No" is punished and saying "yes" without question is rewarded, even if the directive is going to be damaging to the company, the client, or the future. I can't help but wonder how many "less than excellent" employees could see the current problems coming for the fall of the banks or the auto companies but were considered "negative" and "not excellent" while those who carried out the flawed orders of those above them were called "outstanding?"

So Kerr's book is valuable if only that it re-opens the subject and hopefully institutes improvement, if not perfection. You can't expect awards to always be fair, just look at the Oscars or the Emmys. But they're probably here to stay because they're a cheaper alternative to raises and bonuses in these lean times.

That said, the most important part of the issue of whether rewards work is this -- what happens to the people who DON'T get them? They may never speak about it, not wanting to be "poor sports," but for all his quantifying, Kerr can't possibly account for all the hurt and possible bitterness that giving public awards to a select few incurs on the mass of losers. Who is really getting "rewarded" ultimately? The employees or the management who can rest a little easier now that they have rewarded "the best people?"

How can you tell a crowd of employees that they're all valued and they're great, but a few are even greater? Shades of Animal Farm -- some are more equal than others. Such events not only cause deep wounds but also shove wedges between co-workers who are being told there's no "I" in "team." You can't give awards to everybody either, because obviously they lose their meaning. You might want to tailor specific awards for each individual contribution, which is time consuming, or -- heavens to betsy -- visit your people more often to let them know how valued they are. I have seen, too often, that citing the contributions of some while ignoring those of so many others causes hurts, the depths of which you may never be aware.

It's not an easy issue to solve and Kerr, to his credit, doesn't pretend to have all the answers, nor do the companies he served become magically transformed. But again, in these economically challenging times, it might do well to find more ways to do more than just create a blanket reward policy without taking the variables of the human factor into account.

This book will help you in business regardless of what you do. The author is the real deal and has the chops to write a useful business book. This isn't a theoretical book written by an academic but by someone who rolled up their sleeves and worked with Jack Welch in transforming a global giant.

I had low expectations of such a small book, plus I don't design reward systems. However I learned how employees game the system and how important it is to have metrics in place regardless of your job description. "Reward Systems" shows how to define actionable items and make metrics based on performance instead values and emotions. One of the best books I read this year. Hits on all cylinders.

Proper reward systems based on the objectives of the business which are aligned with the business' values make all the difference. However they must FIRST have metrics in place that monitor actual performance, not personality traits. Being aware of metrics, performance, and how reward systems work will impact your own performance and career, regardless of where you are on the corporate ladder.

Other reviews have given details on Kerr's system and the major ideas, so I won't be redundant. Read this book. Every page is loaded with value. With so many terrible business books on the market - especially the faddish theories and verbose sequels to outdated ideas - this book is a treasure. A must read in my opinion, especially for leaders.

Reward Systems by Steve Kerr is a very short book - and it is also a high level book. I have several books on practical reward systems, but that is not what this book provides. Instead, it is more meant for a CEO to think about overall company-wide systems that will help create a productive environment. In that sense I think the title is not quite helpful. Most people who are getting a book on reward systems want to actually create reward systems and get help with them. This book is more about how to decide who gets what raises, and how to get management to implement that well.

To begin with, the book talks about a scientist working with rats. He literally yells at the rats for "not doing what he wanted." Finally he realized his EXPERIMENT was flawed - that he was not rewarding the rats well, so they naturally were not doing the desired behavior. Once he gave them good rewards, they went for them. So for example imagine a maze with pieces of chalk at the end (assuming rats hate chalk ;) ). The rats would not make any attempt to go for it. If instead you had a really lovely cheese at the end, the rat would now try to get it. The book is saying that humans are the same way. If you have "rewards" that nobody wants, you cannot be surprised when the employees do not even try to get them. You need rewards they really do want in order to movtivate them.

The book launches into a long discussion about mission statements and then metrics of how to measure which employees should get a reward. It points out that measurements should be about improving performance. It talks about rating vs ranking - i.e. giving each employee an independent quality level, or putting them all into a long line from top to bottom. Steve points out that ranking systems only really works if every single job has the same skill set and warns that ranking discourages teamwork. He says it is much better to have standards that everyone meets or doesn't meet, vs trying to compare humans with each other to rank them.

As an example, the book cites how people sometimes talk about porpoises being wonderfully helpful and pushing sailors to safety. However, studies show that porpoises like to push all objects in all directions. The sailors that are pushed to land are able to tell their story - but the sailors pushed out to sea drown and don't tell their stories. Therefore we only hear half of the story.

All people in a system need to get treated equally. In many systems the high performers get rewards but no feedback - while the low performers get no rewards and lots of feedback. All people should get feedback so they can get better. Rewards should be quickly, so that it reinforces the behavior, rather than months or years later. You want to change rewards frequently so that they stay "special" and not "expected". Also, you should only rarely punish. People respond far better striving towards a reward than fearing a damaging activity.

The book does reasonably well as a high-end overview of what a reward system should aim for - but it is definitely NOT an actual, practical "how to think up rewards your employees will like" type of book. If you don't have a mission statement or a pay raise system in place yet - or if you are dissatisfied with either - this is a book to take a look at. If you want actual reward system designs and ideas, you will need to look elsewhere.

Rewards Systems: Does Yours Measure Up? is a quick read with practical advice that all levels of Management can apply. The premise is straightforward. Rewards are the final piece of the puzzle of the following questions:

1. Do you have clearly defined targets or goals for your employees?
2. Once you have proper goals, can you accurately measure performance against them?
3. With the proper measures in place, are you providing rewards that reinforce the goals that you are measuring?

Although the book is fairly short, I found a few items that will be useful to me.

As a frontline manager, I have found it challenging to make meaningful, objective translations of annual goals for the people that report to me. In the first part of this book, however, I learned about a "Bull's Eye" exercise. It is used to define the behaviors of frontline employees that will be present (or absent) if the goal is met. While it is not complex, it is not something that I would have come up with on my own.

The section on performance measurement gave me pause about the practices that I've seen at the two companies where I have worked. Kerr makes a strong argument against using ranking systems that compare employees to each other. While I was not a part of the process, my first company did a first through last ranking of all of the software engineers at my location. In my current company, people are compared against their peers as a major validation of rating on performance appraisals. Kerr argues that comparisons that go beyond individual teams are difficult at best because the people are doing different work for different managers.

Kerr spends a lot of time on the first two points because he asserts that they are prerequisite to an effective rewards system. However, he does a good job in the second half of the book outlining all of the components of a reward system. Most people think of money as the primary if not only reward available. Kerr calls out two types of non-financial rewards including prestige and job content. His claim (and I agree) is that money and prestige are of limited supply, but that job content is almost unlimited. Unfortunately it is also the least used. This section correlates well to what Kouzes and Posner have written about in Encouraging The Heart and The Leadership Challenge.

Overall, this is a quick read with some good points about rewards in the work place. While it is not a tome with a lot of theory, Kerr presents the material in a way that readers can spend additional time in thought about their current situation.

In summary, this book simply makes you think!
It really makes one think about the customers point of view, and where our rewards systems should be based.

I really liked the fact that the author makes the obvious point that "money isn't everything". It is simply too fleeting, and so difficult to quantify when rewarding employees with money.

Another powerful summary in the book is the comparison of what companies "want", and what they tend to reward, such as, "Wanting Performance, but rewarding attendance, which results in Employees who come in on time and look busy." Nothing should make a manager think, more than that single item. This book is full of examples like that, and challenges management to measure and establish metric systems for each area of the company.

One of the strong points of the book is the observation that most company mission statements are woefully similar, with no real practical wording that will give clear direction.

I think this is a wonderful tiny book that all managers should have as a desk reference. Now if we can just get upper management to listen.

Reward and compensation systems are one of the most touchy subjects in a company. People don't like you messing with their rice bowl. But if not done correctly, management may well be measuring and rewarding the exact opposite behavior that they are trying to target. Reward Systems: Does Yours Measure Up? by Steve Kerr does a good job of drilling down to the core components of an effective reward system, and can help you get on track if you're floundering.

Contents:
The Power of Reward Systems
Step 1: Define Performance in Actionable Terms
Step 2: Devise Comprehensive Metrics
Step 3: Create Reward Systems That Work
What To Do Monday Morning
About the Author

At 136 pages, Kerr doesn't have a lot of time and space for fluff and philosophical ramblings. As such, the material is concise, direct, and ready for application. First, you need to get rid of the fluffy and lofty visions and goals that can't be nailed down in terms of "did we achieve it or not?" If a vision of "become the best company" doesn't have actions and behaviors associated with it, then it just won't happen. Next, set up the measurements that can be monitored and applied to the actions. Here's where many run into problems. It's a popular exercise today to "rank" all employees in order to weed out the low performers. Conceptually, it sounds effective, but it's loaded with landmines. For instance, all salesmen may be ranked against each other. Bob outsells Bill by a 2-to-1 factor. But that ranking doesn't take into account that Bob's territory is populated with high-income individuals, while Bill is selling to blue-collar workers. In terms of effectiveness, Bill might be a much better salesman that Bob, but his territory will never allow him to generate Bob-like sales. If these types of metrics drive the compensation system, you're rewarding things that people have little control over. Finally, the reward system has to meet the following criteria: eligibility, visibility, performance contingency, timeliness, and reversibility. If a reward system does not meet these criteria, it starts to have diminishing returns. For instance, say that there's a company-paid trip to a resort as a reward for "top performers". Many times this becomes an event that the same people attend year after year because of their past history. If that perk is not "reversible", as in the person not qualifying year after year, it ceases to become a motivator both to those who are locked in and those who might like to make it into the club.

If you've read any management books dealing with rewards and compensation, you've likely run across most of this information before. But generally it's not as concise and applicable as what Kerr has done here. Those running large companies would do well to read this and reexamine their reward systems. And those running smaller businesses should *really* read this and look to structure their compensation systems such that employees aren't "demotivated" to perform. What sounds logical may not be effective in actual practice...

I found myself agreeing with a lot of the points this author as I read it. I will admit I am not in management at this time but could see problems with Senior Management converting to this way of thinking. It is a great read and has good insight.

So, this is apparently a book that is part of a series of books designed for the busy business manager/executive. This small, 150-page, 4" x 2.5" book is designed to discuss reward systems within businesses to enhance productivity and employee satisfaction. After reading it, my assessment is basically what you see is what you get.

Compact, concise, this book covers a lot of ground about the principles of reward systems, the goals, how to formulate and evaluate them, and then gives a number of examples throughout. While the book alleges that even the largest, most successful companies can sometimes have the whackiest nonsensical reward systems (often due to momentum and outdated traditions, if not lack of communication from managerial to staff and above), the book does not give enough credit to those of us who are trying our best, have a bit of common sense, and want to know how to solve the really hard problems.

The principles part of this book are nice. Some very specific principles and tools for designing and evaluating reward systems are provided. Most of the examples are at least interesting, some even helpful. A few are downright incomprehensible, however. I wasn't sure how they illustrated the author's point. Fortunately, the book is straightforward enough that the examples weren't critical to getting the basic ideas.

What was lacking was that I came away wanting more sophisticated examples for harder problems. Don't just give us the more obvious and/or outlandish examples in the author's career-- give us the trickiest, most complex, contradictory, and ingrained in culture examples that were made right. What was the stepwise process to unravelling the disaster and making it work correctly?

Sometimes appropriate rewards aren't so obvious, because of cross-cultural influences which the author mentions such as individual productivity vs. the need for teamwork, but doesn't provide a good example of how to unravel it.

I think this is a nice little introductory book. It warranted, perhaps, 20 more pages at the end with one doozy of a complicated example that brought it all together, tho. That would have been a nice overview/review and demonstrated aptly a way to parse up his methodology into bite-size pieces that fit better into his algorithm.

Still, clearly written (except for a couple of examples that did not clearly illustrate his point), and amusing if all his examples were true, easy and quick and applicable-- so it basically achieved all its objectives.

This review written under the Amazon Vine program.

-vk

Fuzzy Wuzzy's Summary:
**** Recommended with warm fuzzies.

As someone who has managed various teams over the years, I enjoyed this quick read. Its basic repetitive mantra is that if you want to constructively reward performance and reward/motivate employees for doing the right things, you have to measure the appropriate performance indicators... which, as the author presents with a variety of anecdotal ifs/ands/buts, depends upon a lot of variables and trade-offs. The three main steps are: (1) Define concrete actionable performance goals; (2) Design metrics to measure whether the goals are being met; and (3) Create rewards that are directly tied to the goals, behaviors, and performances. But this small book is not a how-to guide for designing a reward system for one's company; it mainly points out lots of considerations that one has to take into account along the way. Although its list price of 18 dollars is a high for a small 134-page book that does not contain any exclusive esoteric knowledge, the Amazon-discounted price makes it more of a reasonable purchase.

The author is correct in asserting that if you are having problems with employees and are experiencing dysfunctional behaviors- it is your problem as a manager and not theirs. This book tells managers to look at how they manage- and I can imagine a lot of employees will want to slip this book into their employer's mailbox. Not much if any new ground is covered here, and yet the contents are worthy and concise.

The writing style does not appeal to me, and I found myself turned off often by the author's pontificating about when he worked at GM or some other company. Yet this is the style these books are often written in, and writing in that way establishes the author's credentials as he makes his points.

Here is what I consider the most basic rule of management: treat your employees the way you would want to be treated. And before I go, one other one: really listen and let them know what they have to say really matters to you. Just doing those two things would do a world of good in a lot of companies.