Creating a Performance Incentive System: Can Risk, Distortion, and Manipulation Be Successfully Balanced?

Weyhrauch, W. & Culbertson, S. (2009). Creating a performance incentive system: Can risk, distortion, and manipulation be successfully balanced? Academy of Management Perspectives, Aug2009, Vol. 23 Issue 3, p98-100, 3p. Retrieved April 23, 2010 from: http://web.ebscohost.com.ezproxy.waterfield.murraystate.edu/ehost/results?vid=2&hid=7&sid=9f186529-d742-4db5-8118-b0bb6bbc0d40%40sessionmgr4&bquery=(JN+%22Academy+of+Management+Perspectives%22+and+DT+20090801)&bdata=JmRiPWJ1aCZsb2dpbnBhZ2U9TG9naW4uYXNwJnR5cGU9MSZzaXRlPWVob3N0LWxpdmU%3d

This research brief was published in the Academy of Management Perspective, and discusses the creation and control of a performance incentive system. Employee’s job performances are measured using both objective and subjective indicators and both methods have shortfalls. Subjective indicators are based upon one individual’s perception of another and are subject to biases. Objective indicators can be flawed and not get a true measure of the employee’s value. In a study conducted by Michael Gibbs, et al, which is summarized in this research brief, states that “a network of diverse performance indicators highlighting strengths and balancing weaknesses may the way to create a fair and accurate system of performance incentives”. Using survey data from approximately 1,000 managers and owners of 326 automobile dealerships, the research team focused on the role of three performance measure properties: risk, distortion, and manipulation. Risk includes both controllable risk as well as risk the employee has no control over. Distortion refers to the extent a performance indicator incorrectly emphasizes certain aspects of performance. Manipulation refers to the degree a performance indicator could be manipulated by an employee to make their performance appear better than it actually is. This brief and study bring to light an interesting subject because in many business settings, an incentive program is an important motivator for employees and an important tool for managers. Finding ways to make these programs more effective and efficient is a very important task for a manager.