It is generally a well known fact that people will give priority to those activities for which they are rewarded. I have written before that if you want to change culture, change the incentives or metrics by which you measure individuals in the organization. This will change their performance which over time, will lead to a change in culture. Yet, individual incentives or metrics are often out of sync with strategy. A survey carried out by Kaplan and Norton in 1996, found that only 30% of companies linked incentive compensation to strategy and that fewer than 10% of employees understood their company's strategy. ('The Execution Premium: Linking Strategy to Operations for Competitive Advantage; Kaplan R.S, Norton D.P; Harvard Business Press; 2008). Admittedly, the survey was carried out a while ago, but recent experience would tend to support the view that companies still have a long way to go in aligning individual incentives or metrics with strategy.
Which begs the question - why? I think that there are 3 main factors at play: First, for subsidiaries incentives are usually dictated by corporate policy. Strategic dynamics may differ from one country to another and what may be a priority in one country may not be applicable to another. Market dynamics do differ from country to country but local subsidiaries tend to have little room to move when dealing with their employees' incentives. Secondly, incentives have a very nasty tendency to become a 'fixed' and 'expected' component of an individual's remuneration package. This is particularly true in those industries where there is a shortage in skilled talent. But, the good news is that this is beginning to change. Finally, changing incentives based on strategy is, let's face it - hard and time consuming. I mean if we are really honest about it, even annual budgets are seldom linked to strategy as subsidiaries are directed to add on a percentage to last year's numbers when setting their budgets.
If companies are to get individuals aligned with strategy and to understand how their roles actually do contribute to strategy, they are going to have to make sure that individual goals are aligned with company priorities at all levels and that incentives are actually aligned with those goals. Good incentives will reward the right behavior. It simply does not make sense to expect a certain strategic outcome and then reward other outcomes or behaviors. Rewarding the wrong things will frustrate the execution process of that you can be guaranteed.
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