The cultural barrier to tying compensation to performance has been such a big issue that it rendered the technology challenges irrelevant. Initially people were concerned that the data being used to measure their performance was inaccurate, or that the measures themselves were wrong. For the most part, a well designed BPM system takes care of that. That still leaves the fact that most people do not want to be measured and compensated on things they do not fully control. Society and politics could be changing that. The outrage aimed at senior executives of the auto companies and financial institutions who were paid well while their companies struggled has created a backlash. Many boards are taking a good hard look at executive compensation. You can bet if the top executives are going to be paid based on performance then they will make sure their management team is measured and paid the same way. This will trickle down from there to department heads, and eventually individual employees. At this point it seems like it is only a matter of time. This brings us to the second challenge: technology. How do you determine performance pay for hundreds if not thousands of employees?
Well, as it turns out the BPM vendor community has been getting ready for this day. The one area of the business that has always been based on a pay-for-performance model is sales. For sales performance management vendors this is a natural extension. They already have fairly complex calculation engines in place to handle incentive compensation for sales people. They need to be able to modify it to work with employees operating under an MBO (management by objectives) approach. While getting an update from one of these vendors just last week it became clear that they have already done this. When companies decide to expand incentive compensation practices to all employees this vendor's products will support their efforts. If they are not already there, you can count on the other sales performance management and comprehensive BPM vendors to follow suit as demand grows.
So, it looks like everything is in place for BPM to take companies down that last mile of the performance management road. Now all we need is for some organizations to lead the way by taking those painful first steps.
Posted April 28, 2009 5:58 AM
Permalink | 1 Comment |
Twitter 
LinkedIn 
YouTube
Craig,
I am concerned whether it is possible, or dare I say, even desirable, for organizations to implement an effective incentive based system of compensation. You note such a system would be "based on what is being measured by the BPM system." The problem is not only whether that measure is "correct," but what other measures of true success are *not* measured by the BPM system and therefore become ignored.
An outstanding TED Conference presentation by Barry Schwartz really drove this point home for me. Schwartz noted two managerial actions that very often cause unintended, highly detrimental outcomes are (1) rule enforcement and (2) incentives. Please take a look at Schwartz' presentation and my BI-related commentary on my blog. I'd very much value your (and others') comments:
http://mikeurbonas.com/2009/04/27/combine-business-intelligence-with-business-wisdom/
To your point regarding senior executives, it is all too true that many have been compensated quite handsomely (grotesquely?), but, they were often indeed comped based on a measure, namely that of *increasing stock price.* Unfortunately, many executives achieved a higher stock price but very often not in a sustainable, ethical or even legal manner. It's a bit like sticking your hand on a thermometer, making the measured temperature go "up" and then proclaim, "See? The room must be warmer now!"
Thanks very much for considering this issue.
Mike Urbonas
www.mikeurbonas.com