Here’s a thought experiment for you: Imagine two sales people working for the same company but in different regions.
Johnson slaves away in her area. She does a great job, she’s a professional and accomplished sales rep and she’s always ready to help her clients and colleagues. However, due to circumstances beyond her control she doesn’t reach her sales target this quarter. Maybe her biggest account goes bankrupt or maybe there’s less economic activity in her region.
Smith, on the other hand, is lazy. He is not very competent and he never bothers to go the extra mile to help his colleagues or his clients. But due to circumstances beyond his control he achieves his sales target nonetheless that quarter. Maybe a big order drops in completely by chance, or maybe the growth in his region is increasing, or maybe his sales target just wasn’t ambitious enough from the start.
Which of the two deserves praise and recognition? Johnson, who does a great job, but doesn’t meet her target or lazy Smith, who got lucky this budget year?
It’s both better, more fair and more helpful to the future results of the company to acknowledge and reward the employees who have delivered the bigger effort.
And of course most companies do the opposite and reward only results, partly because results are easier to measure, but also because of we have a systematic bias for underestimating the ‘luck’-factor.
Daniel Kahneman is the only psychologist who’s been awarded a Nobel Prize. However he won it in economics, since there is no Nobel Prize in psychology. He got the prize for his work with identifying how humans make decisions and founding the field of behavioural economics.
One of the intriguing results of his research is that we highly underestimate the impact that luck has in many situations, and we massively overestimate the effects of our own actions. Good results are often due to luck (at least in part), but we choose to take credit for them anyway.
It’s extremely demotivating to those employees who have made an extra effort but don’t get recognition for it, to stand by and see their less competent (but luckier) colleagues receive both accolades and financial rewards.
Some companies try to solve the problem by creating more complicated bonus structures, but that’s rarely a good solution. Experience shows that bonus schemes are either so simple that they’re almost sure to be unfair to somebody, or so complicated that no one can make heads or tails of them. The study also shows that bonus schemes and rewards on the whole lead to poorer results, less motivation and inferior efforts.
The solution is simple: Leaders must focus just more on the effort of employees than on just their results. We must recognize not only those who reach their goals, but especially those who do an amazing job and even more so those who help others to become better at their job.
It’s not so straightforward, as results tend to be more measurable and visible. Encouraging a great effort will require that we as leaders have more insight and show more interest in our employees’ daily work. However there are three good reasons why we should do it anyway, even if it’s more demanding on us:
1. Effort is not reliant on luck
While good results may be due to luck, great effort is always due to the employee’s talents and attitude – and those employees who consistently demonstrate and improve skills, should clearly be recognized and celebrated.
2. A strong effort will – in the long run – always lead to better results
It’s no good if we only optimize for this quarterly result. We are optimizing for the next 20 or 30 quarterly results.
3. We avoid suboptimization
If we only recognize the employee’s results, we’re creating a culture in which we’ll do anything to obtain results – instead of doing what’s right for the clients and for the long term targets of the company. If I only get rewards for achieving my own sales targets, why on earth should I spend time and effort helping my colleagues?
So leaders must encourage and acknowledge effort rather than results. In the long run it will create more fairness, more motivation and – ironically – better results.