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Key Performance Indicators are used in almost all organisations over a certain size. Generally they are viewed as being a reward for increasing revenue or reducing overheads. However such a system can sometimes result in generating behaviours that undermine other equally important goals within the organisation. Some of these other goals could be: investment in growth and expansion; research and development; delivery of a quality product or service; employee skill levels; customer satisfaction; and even long-term profit.

Over the years we have witnessed a number of organisations rely on rewards programs that were not really serving their overall best interests. Perhaps some of the tales listed below will be familiar to you as well.

• A government organisation had set KPI’s based on how quickly various claims could be processed by each claim handler. This then encouraged employees to neglect vital steps in the procedures simply so they could churn the documents through more quickly to meet their performance targets. Correcting these errors resulted in a lot of wasted time.
• A large private organisation had published a Code of Conduct which they strongly promoted to new employees. However the KPI’s set for these individuals undermined the effectiveness of this Code. While the directors claimed they valued team-work highly; their reward system in the mean-time stimulated competitive and obstructive behaviours.
• A medium sized company set up a generous reward system for their customer service team to encourage retention and reduce absenteeism. Unfortunately the targets were set so high that almost no bonus was ever awarded. This resulted in increased turnover and absenteeism as dissatisfaction with the reward system spread.
• A multi-national organisation provided an annual bonus payment to all employees based on company profits. While this proved to be an effective reward system for employees who could directly impact the profitability of the business; it merely served to frustrate employees in lower level positions because it highlighted how little influence they had over the outcomes.
• A small company was providing intimate rewards in recognition for loyalty; such as birthday leave, dinner vouchers and additional sick leave during personal crises. These rewards however, gradually became a major burden when the company expanded. Suddenly, a personal gift to a few friends ended up becoming expensive salary extras for forty employees, many of whom were completely unknown to the directors.
• The worst case of confused organisational purpose and the reward system applied occurred in an organisation whose primary purpose was to make legal judgements on specific types of cases. The adjudicators were rewarded for processing their cases quickly and for having very few re-hearings. As a consequence applications for rehearing were routinely denied regardless of evidence or logic. The adjudicators exceeded their performance targets but in the process undermined the entire purpose of the organisation.

Establishing a totally effective reward system requires all organisational goals, missions, purpose and policies be factored into the plan. This takes a great deal of planning and consultation which can be very time-consuming.