Incentives and Controls

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Execution will suffer if people are rewarded for doing the wrong things. Accordingly, an incentive program that provides individual and group rewards when the short-term objectives are achieved is essential. Of equal importance, these rewards must also reflect the desired business structure. A balance must be struck between group and individual rewards that makes sense. Rewards tell people what’s important in no uncertain terms, and what to emphasize. Controls are the feedback loop, providing information to the organization’s leaders on how well the strategy is being implemented.

Incentives motivate behavior and actions that are consistent with the desired outcomes. Controls provide feedback about performance so corrective actions can be taken and the organization can learn.

Good incentives motivate people to do more of what works rather than seeking to punish them for doing the wrong things. Incentives come in two general varieties:

1. Extrinsic: an increase in salary, a bonus, a promotion or something else that’s tangible.

2. Intrinsic: an award, greater autonomy, the opportunity to become involved in more interesting projects in the future and so forth.

It’s absolutely essential that the incentives available in your organization reward the right things–id eally performance against your agreed objectives. If you say one thing but reward something entirely different, people will discount your words and do whatever earns the incentive, even if this is detrimental for the organization. It’s important to avoid unintended consequences in the incentives offered. You always get what you “pay for.”

Once incentives are in place agreed upon, controls then become important. In effect, controls are the flip side of incentives. Controls provide feedback on performance, reinforce the correct execution methods, provide a corrective mechanism to get back on track and facilitate organizational learning.

Controls operate in this way:

Specify the short-term strategic objectives
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Compare actual and desired performance → Analyze and study significant deviations
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Analyze cause-effect Learn more → Correct the situation as needed
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Issue incentives Take corrective action Take corrective action Make any changes that are required

Note that the effectiveness of this control flowchart will depend on the use of good objectives. Poor objectives will doom the process. If it isn’t possible to measure results systematically, or if the objectives don’t relate logically to the strategy, the entire process breaks down and becomes pointless. Good objectives are centered around doing the right things whereas with poor objectives, the wrong things are reinforced.

Some other key points to keep in mind are:

Always make sure you reward the doers and recognize the performers rather than those who mean well but never quite get around to doing what’s required.

Celebrate success. When your organization achieves a milestone, do something memorable.

Make certain you face the brutal honestly and openly. Don’t try and fudge the facts. Ignoring the real facts of the situation can only detract from your ability to make your organization’s strategy work.

Recognize and reward cooperative efforts. If the achievement required the activities of a large group, be certain everyone gets recognized and rewarded appropriately. If just the group leader gets the accolades, there will be willingness to get involved next time around.

Be very clear about who is responsible and who is accountable for results. The control process won’t work if accountability is muddled.

Provide everyone with timely and valid information so they can take corrective actions sooner rather than later. For controls to work, everyone’s information must be accurate and timely. Out-of-date information is a genuine problem. And check to ensure the information you provide is actually being used and not getting lost in the background noise.

Have leaders in place who will lead by example. The last thing you want is a “Do as I say, not as I do” culture.

Incentives are central to any plan of execution. They tell people what’s important and what to emphasize. Behavior that is reinforced tends to be repeated. Successful execution requires that incentives reward the right things.

–Lawrence Hrebiniak

Controls represent a feedback loop. They provide information about the achievement of objectives that derive from strategy and other aspects of our model of execution. This feedback is important because strategy execution is an adaptive process. Managers rarely get everything right; fine-tuning of plans, objectives, and implementation methods is more often the rule than the exception.

–Lawrence Hrebiniak