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  • Writer's pictureRick Cramblet

You Don't Get What You Plan On, You Get What You Incentify

We make our annual plans, we set our quarterly goals, we may even develop more granular monthly plans, weekly plans, elaborate spreadsheets or CRM based KPI's or OKR's and then... "it" happens.

The "it" that happens often isn't what you wanted to happen...

You wanted the sales team to find new customers but they didn't.

You wanted the shipping team to reduce their error rate, but the error rate went up.

You wanted your finance team to reduce the days sales outstanding (DSO) of your receivables, instead they increased.

There's obviously a disconnect between what you and your team planned and what is actually going on.

What Went Wrong?

We didn't define success clearly enough... at least, not clearly enough for those who were trying to execute. This is a classic "Communication Process Model" issue where we fail to ensure that what we say is what the hearer understands. EXAMPLE: The Sales Manager tells the team that sales of Product X will have a special commission rate of 3% instead of the normal 1.5% but fails to say that the product must ship before the 31st of the month to qualify. Imagine what happens when Bob returns with a huge order for his customer's entire yearly requirement of Product X, with ship dates every other month...

Make sure that you have those on the execution side of the equation tell you how they think your incentive is supposed to work - have them give you examples or run some scenarios and save everyone a lot of grief.

I dare you to make sense of this!

We defined success too clearly... and it stopped people from trying. If not being clear enough creates confusion, having too many criteria for success will not incentify behavior either. An incentive program that looks like the User Agreement for your favorite mobile device app is not going to elicit the response you want.

The fewer criteria used to define the outcome you truly want, the better. If it's to lower the DSO, let the team know what the current DSO is, how it's calculated and what you want it to be - and what happens if that's achieved.

"Our current DSO is 36.5 and we want to bring them to 36 or below. We calculate our DSO number as follows - receivables for the rolling 12 months / sales for the rolling 12 months * 365 days = DSO. If we get to 36 DSO or below, we're taking the accounting team out for lunch at your favorite restaurant!

We have a hidden incentive that undermines or negates the desired behavior... In the book "Power Failure" by William Cohan, he tells the story of how GE's CEO - Jeffrey Immelt - sowed the seed for his corporate failure (he was forced out of his CEO position by the Board of Directors) through the use of a highly lucrative supplimental pension program. The GE Supplementary Pension Plan (know to insiders as the "SUP") had the following elements:

The employee was at least 51 years old

They had to remain at GE until you reached age 55

Upon exiting GE, you receive 80% of your salary and bonus FOR LIFE (regardless of whether you took another job or not...

Your participation was solely at the discretion of the CEO (Jeff Immelt)

Let's see if you can guess what effect this might have had on the type of feedback Jeff received from his highest ranking executives when it came time to develop and execute strategic initiatives.

Quoting from the book: "Instead of the team of rivals that had surrounded Jack (Welsh), Jeff had created a team of sycophants, aided and abetted by the unintended consequences of a highly lucrative supplemental pension plan.... most people coveted the SUP if they were in a position to get it and, once awarded, chose to keep quiet rather than risk losing the SUP by getting on the wrong side of the CEO."

As a result of incentifying the silence of his top leadership, Jeff made a bunch of bad decisions with minimal pushback and those decisions put him in the crosshair of activist investors who pressured the BAord of Directors to replace him to "enhance shareholder value".

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