WHY KPIS AND ANNUAL BONUSES ARE A WASTE OF MONEY

CLAIRE EL MOUDEN

Deloitte Seminar, 2013 ‘Motivating top management through well-structured pay’

Appreciation for your workGood relationships with colleaguesGood work-life balanceGood relationships with superiorsCompany's financial stabilityLearning and career developmentJob securityAttractive salary

Interesting job contentCompany values

Boston Consulting Group, ‘Decoding Global Talent’, 2014.

RATIONAL CHOICE THEORY

ECONOMICS

NEUROSCIENCE

PSYCHOLOGY

ECONOMICS

ANIMAL BEHAVIOUR

BEHAVIOURAL

ECONOMICS

EVOLUTIONARY BIOLOGY

NEUROSCIENCE

PSYCHOLOGY

ECONOMICS

ANIMAL BEHAVIOUR

BEHAVIOURAL

ECONOMICS

EVOLUTIONARY BIOLOGY

RATIONAL CHOICE

INFORMATIVErepeated

time to decide can learn what works

instant reward

RATIONAL CHOICE

INAPPROPRIATE

one offstressed

uncertain worlddelayed reward

NEUROSCIENCE

ECONOMICS

ANIMAL BEHAVIOUR

PSYCHOLOGY

BEHAVIOURAL

ECONOMICS

EVOLUTIONARY BIOLOGY

Overconfidence bias

Bandwagon effect

Availability bias

IKEA effect

Confirmation bias

Authority bias

Hindsight bias

Loss aversion

Deloitte Seminar, 2013 ‘Motivating top management through well-structured pay’

PERCEIVED VALUE ≠ ACTUAL VALUETIMING MATTERSWE ARE SOCIAL ANIMALS

MAKE INCENTIVES APPEAR MORE VALUABLEWe are more bothered by losses than gains

‣ “you already have a bonus, just do X to keep it”.

We are attracted by big prizes

‣ instead of £5000 bonus, enter 50 employees into a lottery for £100,000 (costing you £2000/employee)

People value gifts more than cash

‣ instead of a £5000 bonus offer your employee and her boyfriend a 5* long weekend in Barcelona (costing you £2000).

MAKE INCENTIVES TIMELYWe discount the future

‣ Link financial incentives to short term goals

People are more likely to do a behaviour if the costs/benefits are imminent

‣ Remind people when they have 24 hours left to do something.

People are receptive to change long-term behaviours when in transition (e.g. new job, new office, new house)

‣ If you want to new policies that change the office culture to work, switch desks or work schedules at the same time?

MAKE INCENTIVES SOCIALReward employees with social prestige instead of money

‣ public praise (e.g. a plastic trophy)‣ personal email from the CEO

‣ we copy socially prestigious individuals (so reward the right people).

Focus competition between groups not individuals, particularly in stressful periods

People conform to the (apparently) most common behaviour (careful not to make ‘problem’ behaviours worse!)

‣ e.g. “Most employees complete their timesheets on time”

Share rewards with the family, not just the individual

DEFAULTS TIMELY PRAISE

SOCIAL CONFORMISMFUTURE DISCOUNTING

NEUROSCIENCE

PSYCHOLOGY

ECONOMICS

ANIMAL BEHAVIOUR

BEHAVIOURAL

ECONOMICS

EVOLUTIONARY BIOLOGY

THE FUTUREScrap annual bonuses and generic KPIs

Tailor incentives to an individual’s circumstances, personality and goals

Use behavioural insights to communicate the right information at the right time to motivate employees

I’M DONE

NOW IT’S YOUR TURN