Reference no: EM131692112

We can look at compensation and rewarding behaviors (performance) in a number of ways. Often times we get wrapped up in trying to figure out a complex reward scheme that we forget the basic concept: we will get the behavior that we compensate. This is so basic and yet a key point that is very often overlooked. For example, one organization I worked for provided a HUGE commission for the National Sales Director if the company's sales exceeded a certain goal.

The problem, however, is that they allowed the sales staff to set our pricing. They did not reward profitable sales, they only awarded total sales. The sales manager had literally millions of dollars of bonus at stake. What do you think they did? They delivered exactly what we asked them for based on their compensation package: SALES. We never said they had to be profitable sales, only that they had to sell a lot! The sales force continued to lower prices in order to get more and more sales until the point our sales price was so low we lost money on each sale. It may sound silly, but it's a huge word of caution when designing compensation - we will get exactly what we motivate!

Group, your thoughts? Though we aren't addressing compensation here, we are addressing how we measure performance. How might our measurements have an impact on how the manager behaves?