Towards the end of Income/Outcome workshops we look at Key Performance Indicators (KPIs) and other metrics, and consider how people change their behavior depending on what they are measured on.

We subscribe to the rueful view that if you measure people on Sales Revenue (i.e. the top line of the Income Statement), they lose you money. But if you measure them on Profit (i.e. the whole of the Income Statement), they tie up resources all over the Balance Sheet. And if you measure them on Return On Assets (i.e. the relationship between Profit and the Balance Sheet), they strip the Assets out of the business. The question is, how can you incentivize people to think like the long-term owners of the business and make all their decisions with that mindset?


But the question itself may be wrong. Research by Sam Glucksberg 50 years ago, published as “The influence of strength of drive on functional fixedness and perceptual recognition” in the Journal of Experimental Psychology in 1962, demonstrated that people’s creativity can be impeded by monetary rewards. Given a relatively simple problem to solve, a cash reward for a speedy solution produced faster solutions than no reward; but when the problem was posed in a more difficult way so that more creativity of thought was required, offering a cash reward produced slower solutions than no reward.

In his 2009 book “Drive: The Surprising Truth About What Motivates Us“, Daniel Pink states: “Behavioral scientists often divide what we do on the job or learn in school into two categories: ‘algorithmic’ and heuristic.’An algorithmic task is one in which you follow a set of established instructions down a single pathway to one conclusion. That is, there’s an algorithm for solving it. A heuristic task is the opposite. Precisely because no algorithm exists for it, you have to experiment with possibilities and devise a novel solution. Working as a grocery checkout clerk is mostly algorithmic. You do pretty much the same thing over and over in a certain way. Creating an ad campaign is mostly heuristic. You have to come up with something new.”

He continues that in the 20th century most work was algorithmic – not just factory work, but anything that could be reduced to a script or formula, whether in accounting, law or computer programming. Such comparatively uncreative work is susceptible to carrot-and-stick incentives, but is also work that can be automated.

Most of the job growth in developed countries these days is in heuristic work – hard to automate, and hard to incent financially in an effective way, because the incentives are likely to reduce productivity. In heuristic work, people perform best when they are working for the joy of the creative challenge. Not that they don’t also need to earn enough money to be comfortable, of course! But if people work at what they enjoy, they are more likely to report ‘peak experiences’ at work than in leisure activities.

What happens to KPIs and reward metrics, then?

It’s not all hopeless, because one of the creative challenges that people enjoy at work is achieving goals and being successful in their job function. They should have standards, goals and metrics because these things provide challenges that can be met and therefore can make work more enjoyable – but, as with all KPIs, be careful in what you measure people on, or you can hurt their productivity, their creativity, their job satisfaction, and the health of your business.