Uncritical Use of Reward Systems

"Norwegian working life is making uncritical use of trendy management tools and management techniques," says psychologist and management consultant, Bjørn Helge Gundersen.

01.04.2008 - Sigrid Folkestad

In a short period of time several large Norwegian companies have undertaken controversial bonus plans. The management of Statoil/Hydro will introduce a differentiated bonus arrangement, and DnBNor has recently obtained a system of performance-related pay. Managing director of the Administrative Research Foundation (AFF), Bjørn Helge Gundersen (a psychologist and management consultant), is very critical.
Embarassing situations

"Over time, unintended outcomes of these efforts will negatively affect well-functioning agencies," says Gundersen.

Embarassing situations

"Over time, unintended outcomes of these efforts will negatively affect well-functioning agencies," says Gundersen.

"Performance monitoring, the control and measurement systems that are needed to evaluate individual output, can easily undermine team work value, trust-based and egalitarian relations, flat organizations and independent contribution", he stresses.

"We know that the most outrageous compensation systems and option agreements that were developed in the 1990s created extreme greed, stimulated criminal behaviour between leaders, ruined staff and destroyed good enterprises in the USA.

Gundersen thinks that Norwegian variations of this, ordered and implemented by the board of directors and top management, have led to embarrassing situations and negative reputations for leadership in our biggest companies. The director's compensation committees and management consultants did not forsee this when they adopted the American systems. Gundersen claims that those who live large on selling these systems today, are investigating what changes companies can make in the reward systems when the good times are over.

"I believe that today some Norwegian board directors, HR directors and top managers are reflecting on what will happen to performance-based compensation - and the salary system that they have introduced when declining times fully set in."

Bad systems

"What total effects will it have on culture, relations, motivation and productivity in the agency when good performance cannot be remunerated?", questions Gundersen.

"DnBNOR has recently established a system for performance-related pay. After reading the press on these issues, there are many things I wonder about. Where did the initiative come from, who made the decision, what did they base their decision upon, which point of view lies behind the choice and how does this match with the value foundation of the company?," asks Gundersen.He emphasizes that this specific example and many other examples indicate that companies have established systems which, from the start, already have many problems and the desired effects of which are difficult to document.

"It should be a challenge and a warning for Norwegian managers and boards of directors that much of economic theory, management theory and organization theory are built upon American professional culture, research methods and empiricism."

"In the extension of this there is an endless array of books and articles which are selling executive essays, company cases, culture characteristics, techniques and methods which are embraced one year and gone the next year."

Trivial performance models

The management consultant believes that the heavy marketing of these magic formulas, and a popular and commotion-creating sales rhetoric lures leaders to try something new all the time.
Gundersen asserts that it is striking that most measurement conducting models end up with the same trivial performance models. Either as a number, a letter or a four-box table. Such a single result can determine the future of an individual's job.

"On a positive note", stresses Gundersen, "such an approach simplifies the amount of information and can shape the foundation for rational conversations about stakes and development. On the negative side, it can lead to homogeneity, incorrect discipline and judgement of employees."

"In this way, it is unfortunate that trivial models which are not methodically verified produce measurement systems which suffer considerable weaknesses. The company's systems and processes are under continual debate and discussion. This involves changes and adjustments and thereby can also end up with sizeable measurement errors and twisted effects which the initiator cannot anticipate."

"This has led to statistical testing of methods and tools and has shown that they do not distinguish based on performance as was intended, but instead are influenced by factors like race, age, and/or gender."

Large enterprises have ended up in trials and compensation lawsuits on the basis of segregating and discriminating HR-practices with this initial position.

Hindering creativity

The AFF director points out that 50 years of motivation research shows that bonus systems and performance rewards shift focus and drive from inner motivation to external motivation, and that the initial job content is slowly being replaced by a focus on money.

"We know that this is negative for innovation and creativity, and is also a very unlucky influence on knowledge intensive undertakings and in the knowledge based economy our community is building upon."

"One reduces systematic risk and new thinking and directs toward security, repetition and what was done previously," concludes Gundersen.

This article is published in the NHH Bulletin, nr. 1 - 2008

Translated by Jessica Hartenberger

Kontakt: paraplyen@nhh.no
Redaktør: Astri Kamsvåg
Ansvarleg redaktør: Kristin Risvand Mo

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