Imagine the following workplace scenarios:

1) In a manufacturing assembly line productivity (number of parts assembled per worker) seems to have suffered a serious decline.
Analysis: Bonuses were previously based on individual worker piecework (measured daily) and were changed to reflect total line output along with other company objectives that workers feel are in the hands of upper management (i.e., a company wide strategy to gain ISO 9000 certification). Rewards are now less directly tied to individual behavior by performance. Worker BUY-IN or OWNERSHIP (important concept in the workplace) to company goals (ISO 9000) to which their input has not genuinely been sought, may be low resulting in low commitment to the success of these goals. Still bonus/reward realignment may ultimately help achieve company goals, but behaviors will be affected.

2) The CEO of a large company notices that although overall profit margins and productivity are good, cooperation between the people in various divisions seems to have declined, in fact there seems to be animosity (e.g., in sharing company resources) where once was camraderie and cooperation. Some long-term company-wide objectives (ISO 9000 and Lean implementation) that require inter-division coordination seem to be suffering.
Analysis: The monthly bonus rewarding performance/goal achievement strictly by and within each division has replaced an annual bonus that was based on overall company performance and was evenly distributed between divisions and all employees. This has led to sometimes aggressive competition for shared resources between employees in different divisions.

3) A sales division not only seems to be suffering declining sales, but a few salespeople (former highly esteemed employees) have been disciplined or terminated for falsifying records (e.g., claiming contacts they have not made).
Analysis: Pay for salespeople was largely based on individual sales’ commission (the holy grail of compensation for top salespeople as my co-blogger Dennis might say). Changing compensation to a fixed salary (no-longer paying a commission to salespeople based on a percentage of their individual sales) was when the problems began.

4) The engineering division for a large company has received real gains in individual salary increases along with a record annual bonus, yet morale seems low and the grapevine has it that a few of the top engineers are looking for different jobs.
Analysis: This company’s product is highly engineered, the former company head came from engineering, and those in engineering have historically been feted as more or less saviors (well earned at certain challenging times in the product history). The current company head came out of human resources (seems to have little empathy for the engineering aspect of the business) and much of the engineering workload is being farmed out to satellite locations in India. Compensation is still a reward for these employees, but for some it doesn’t compete as a reward with recognition and a sense of self importance (in psychology we might refer to “self focus”) in a larger mission (the success of the company).

Now, are the above scenarios a bit contrived? Certainly, but not entirely unlike some real-life workplace events that I and many readers may have experienced. What do they all have in common? Rewards (reward contingencies) have changed and thus affected behaviors. Examples one and two demonstrate extremes between rewarding narrowly directed behaviors (individual or small group performance) and rewarding more globally directed behaviors (organizational performance). While example three emphasizes compensation as reward, example four demonstrates that non-monetary rewards can be important also.

My message is simple, organizational leaders and policy setters are responsible for much of individual and group behavior (desirable or not). The circumstances you contrive that act as rewards (and punishments) will likely influence work behaviors far more than individual dispositions. So, it is simply prudent to define what behavioral outcomes are desirable (based on business model, long or short term needs, etc.) and only then carefully designing or revamping organizational/individual reward systems (compensation, rules, policies, etc.). In future posts more discussion of behavior shaping, rewards, and reward schedules. But in the next post I want to explain why I focus on workplace behavior.

Steve Kerr, former chief learning officer for General Electric and Goldman Sachs, has written a short book on Reward Systems: Does Yours Measure Up? The book is in the Harvard Business Press Memo to the CEO series. However, any employee at any level can learn valuable lessons from the enjoyable book.

I find a lot of short, popular books like this — it clocks in at less than 136 pages — are relatively short on content. Many can be summarized in a couple of pages or paragraphs. But not this book by Steve Kerr. Kerr has had a long career in acadame and industry; he is also an excellent story teller. As a result, the book provides a wealth of information on what goes wrong, and what can go right, with reward and compensation systems.

The book contains a number of checklists and guiding principles. The major organizational principles are:

1. Define performance in actionable terms
2. Measure the right things
3. Reward the right things

This may sound simple. Of course, the devil is in the details. The book provides a great deal of information on how you can attempt to follow the three principles.

The following news item came via the IPAT listserv. It deals with the high failure rate on the recent New York Fire Department Promotional Exam.

According to the New York Post, “It was a massive medical failure for hundreds of FDNY medics who hoped to get promoted, as a measly eight out of 721 city Emergency Medical Service workers passed the most recent lieutenant exam. The 1.1 percent pass rate for the 2008 test is about 38 percentage points lower than the last time the exam was given, in 2004, when 1,044 medics took the test and 409, or 39 percent, passed, The Post has learned.”

What I found most interesting about this case was the possibility that the results were a function of the pay schedules or compensation system. Again according to the New York Post, “Lieutenant pay starts at $48,900 annually, according to the city’s exam notice. Top paramedics can expect a base salary of $59,000, and several thousand dollars more in meal money, overtime and shift-differential pay.” In addition, you might expect that the paramedics would start at the bottom of the Lieutenant list when it came to the application of seniority in matters like selecting shifts or locations.

I have encountered similar situations. In such a case, there is relatively little motivation for anyone to study for the exam or desire a promotion. If the article is correct, then there would appear to be a compensation problem driving the testing results.

Two topics that attract my interest are 1) Emotional Labor and 2) the Nature of Service to the Public. Mary Guy, Meredith Newman, and Sharon Mastracci explore both topics in a book titled Emotional Labor: Putting the Service in Public Service.

The positives of the book:

• The authors take a scientific approach to the topic
• A great deal of data and information are presented
• The concept of emotional labor is approached from a number of angles and viewpoints
• The concept of service is approached from a number of angles and viewpoints
• For those involved in Human Resources in the Public Sector, this is a very good introduction and also in-depth look at the topic
• A number of new ideas are presented, which can lead to a lot of discussion

The negatives:

• It reads like a technical report or dissertation turned into a book
• The authors have a very strongly defined political point of view, which is fine in a book, but that leads to skipping over a lot of counter arguments and research
• Despite seeming to be an exhaustive look, the book skips over a lot of research on emotional labor. In truth, the book has more to do with public service than emotional labor as defined in the psychological literature.
• Many of the authors’ arguments and viewpoints concerning pay come out of the comparable worth movement of the late 1970s, early 1980s. Yet, they do not discuss the relevant literature or counter arguments. In places, the book seems very dated despite having a 2008 copyright.

Overall, if you are involved in human resources in the public sector or are a student involved in public administration or public service, you should buy and hold onto this book. It provides an excellent overview of a number of topics. There are not enough books dealing with the human resource aspects of service jobs, and this book does an excellent job of introducing the issues and problem areas involves in studying, analyzing, and paying for public service jobs.

As I write this, Obama has signed the so-called Ledbetter or Equal Pay Bill. For organizations, this law can represent a major challenge. Many organizations do not retain the records or the documentation that would allow them to respond to pay discrimination suits filed years after the act. Although there are some who would argue for the benefit of no records, I believe that the only real solution is more and better documentation. Companies should collect and maintain information on the rationale for their pay decisions, including those at initial hire.

In addition, this does work against the movement in recent years to broader pay bands with wider managerial discretion.  If managerial discretion is going to be allowed, the reasons for decisions should be recorded and justified. The other alternative is to move back to greater use of centralized pay decision mechanisms.