Saturday, April 29, 2006

What Happens When Achieving the Goal Means Axing Your $2.6 million Target Bonus?

Dear President Bush,

Incentive programs frequently distort the work needed to benefit the “incented” individual. The organization is sub-optimized so the compensation of a few can be optimized.

A system has an aim and is made up of interdependent parts. When one part acts to optimize itself, the whole suffers. The aim should be optimization of the larger organization.

Fannie Mae just set a target bonus of $2.61 million for its CEO and added a performance goal “to optimize the company’s business model…”.

Systems theory would suggest these two actions are mutually exclusive. For the CEO to optimize the company, he would need to eliminate all systems that foster internal competition, that create winners and losers. The first thing he would need to do is eliminate the target bonus system. Add an understanding of systems, knowledge, variation, psychology and their interactions, and the CEO would find himself in a better position to achieve his new performance goal of optimizing the company.

Your administration is spreading the poison of incentive compensation within government. As Dr. Deming said “if you want people to do a good job, give them a good job to do!” Good jobs don’t require incentive pay. Alfie Kohn offered the following advice to leaders on their wage programs. Pay people as much as you can, then do everything you can to get them to focus on the work, not their compensation.

The Fannie Mae board failed in these respects, as do most American corporations. That the federal government is implementing suboptimal management practices is consistent with its regression in other leadership practices. By the time you leave office win/lose systems will be deeply ingrained in government operations. The deterioration of Congress is bad enough, that it has infected the Executive branch is most concerning.

What happens when “No Child Left Behind” actually encourages “Large Groups of Children to be Left Behind? That is the system you created.

It is also the system that abandons the average American worker in favor of the close knit group occupying corporate board rooms. They simply take turns padding each others pocketbook while ensuring dysfunctional systems. Have you looked at CEO turnover statistics lately? Even when top dogs don’t “perform”, most walk away financially secure. It seems they are blessed when they do, and blessed when they don’t. May the average worker be treated similarly.

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