Webinar: Motivating and Evaluating Performance


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Incentive compensation is one of the most powerful tools managers have to motivate and direct their employees—but only if they are used properly! On Wednesday, 4/23 from 1 -- 2 PM EDT join eCornell for a webinar with Cornell University Prof. Robert Bloomfield entitled "Motivating and Evaluating Performance."

During the webinar, Prof. Bloomfield will discuss how to:

Link performance evaluation and incentives to organizational strategy
Revise strategy and operations to accomplish strategic goals at lower cost
Help employees collaborate and work together across departments and functional areas, and communicate more effectively with colleagues about the goals and performance of their organization
There will be time for a Q&A session with Prof. Bloomfield so you can ensure that you get information relevant to your area of business.

This webinar is perfect for managers and leaders, including accounting and finance professionals who are responsible for managing costs, margins, revenue, or efficiency and would like to take a more strategic approach to motivating performance.

Published in: Business, Technology
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  • Both outputs and outcomes are important, but we need to use them differently.
  • It might be easy or hard to hit an output target, but at least you know what you need to do: apply effort, skill, time and money in some combination. But you might not have the ability to hit an output target, because others must do their part, and you can’t control them.
  • One of the most famous examples of outcomes used in private-sector contracts.
  • Words we get to later:NoiseBiasSignal-to-Noise ratioPrecision (inverse of variance)Prior BeliefPosterior Belief(Bayesian) Updating
  • Webinar: Motivating and Evaluating Performance

    1. 1. 1 Motivating and Evaluating Performance
    2. 2. 2 I sure hope she knows how to use that thing!
    3. 3. 3 Questions about Paying for Performance Why tie pay to performance? What are the unintended consequences of tying pay to performance? How can (and do) accountants help? What if people are Homo Sapiens, not Homo Economicus?
    4. 4. 4 Free pdf: http://ssrn.com/abstract=2427106 If you have objectives you wan to accomplish, this book is for you! • Are we achieving your objectives? • Is our strategy working for achieving our objectives working? If not, what should we do differently? Are we executing our strategy poorly, or is the strategy flawed? • How can we encourage others to pursue our objectives, rather than their own? • How should we reward people for their contributions?
    5. 5. 5 Why Pay for Performance? Motivation Communication Risk-Sharing Screening
    6. 6. 6 Motivation
    7. 7. 7 The Piece Rate System
    8. 8. 8 Communication
    9. 9. 9 Risk Sharing
    10. 10. 10 Why Share Risk?
    11. 11. 11 Screening
    12. 12. 12 Principal-Agent Theory
    13. 13. 13 Choose Your Poison Low Motivation High Pay Costly Reporting Systems
    14. 14. 14 No System is Perfect
    15. 15. 15 The Participation Constraint
    16. 16. 16 • I returned, and saw under the sun, that the race is not [always] to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all. • Ecclesiastes 9:11
    17. 17. 17 Incentive Intensity, Motivation & Risk
    18. 18. 18 The Compensating Differential You need to pay extra to get people to take risky jobs—even if the risk is “only” unpredictable pay
    19. 19. 19 Incentive-Compatibility Constraint
    20. 20. 20 The Law of Measure Management Measure Management Distorting operations or reporting to manage the measure of performance, rather than the underlying performance the measure is intended to capture Measure management arises when measures capture performance constructs with error, the people being evaluated are aware of this fact, and people have discretion to distort either operations or reporting.
    21. 21. 21 Constructs & Proxies
    22. 22. 22
    23. 23. 23 The Allegory of the Cave
    24. 24. 24 The Modern-Day Cave
    25. 25. 25 Skepticism A belief that shadows are unreliable representations of underlying reality (forms).
    26. 26. 26 Cynicism A belief that people act in their own self-interest, and intentionally creating shadows that are unreliable representations of underlying reality (forms).
    27. 27. 27 Imperfect Measures Cause Moral Hazard • Being insulated from the full consequences of your actions • Arises when the principal cannot distinguish luck from other factors that determine performance Moral Hazard
    28. 28. 28 Outputs vs. Outcomes (GASB) • Measures that quantify the amount of a service provided. For example, the lane-miles of road repaired, school graduation rates, number of patients treated in the emergency room, tons of garbage collected, or number of fires extinguished. Outputs • Measures that gauge the accomplishment or results that occur at least partially because of the services provided. They provide a basis for assessing how well a service's goals and objectives are accomplished. Outcome measures indicate the quality or effectiveness of a service. Outcomes
    29. 29. 29 Why Governments Care “Bragging about how many new schools you‟ve built counts for little until children start graduating with economically useful skill sets. (Link)
    30. 30. 30 Outcome-Based Contracting • Charge for outcome (reliable operating time) not output (hours of repair) „Power by the Hour®‟,
    31. 31. 31 Is Our Causal Model Correct & Complete?
    32. 32. 32 Three Problems To Watch For • Omitted underlying constructs • Mistaken links between underlying constructs Flawed Theory • Poor representations of the constructs • Omitted variables Flawed Proxies • Unintended consequences Flawed Application
    33. 33. 33 Implementation Problem # 2 Incentive Intensity Slope of Pay- Performance Line Quality of Performance Measurement System Noise in Proxy Measures for Effort Compensating Differential Level of Pay Given Expected Output Higher incentive intensity increases motivation, but imposes risk on the agent—risk averse agents will demand higher pay (a compensating differential) A better performance measurement system reduces this cost of incentive intensity
    34. 34. 34 In a Nutshell: • If you have good measures of how hard or smart people are working, you can base pay on them with high incentive intensity • The noisier your measures, the lower incentive intensity must be Output measures • If you can‟t easily measure how hard or smart people are working, you must base pay on outcome measures • Omitted variables make outcome measures uncontrollable, so incentive intensity can‟t be too high Outcome measures • The better your performance reporting system, the more cheaply you can motivate workers and screen for ability or work ethic • The worse your system, the more you will have to pay in compensating differentials and the more you will screen for risk seekers Performance Reporting Systems
    36. 36. 36 Effort and Pay are Not Enough • The head of a Federal agency might not agree with the President‟s goals • Requires a “disagreement-based” model Agents might care about the outcome
    37. 37. 37 Paying for Creative Advertising • Effort doesn‟t improve creativity • Effort can even harm creativity Effort might not improve performance
    38. 38. 38 The Crowding-Out Effect Extrinsic incentives can dampen intrinsic motivation. Don‟t turn play into work! “Fat Kids Who Hate To Read”
    39. 39. 39 Gamification Dollars are not as motivating as you might think “Winning” is motivating, even if there is no prize
    40. 40. 40 Free pdf: http://ssrn.com/abstract=2427106