The fallout of employee performance measures on consumers

There's a great book on the subject by Harvard Business School professor Robert Austin -- Measuring and Managing Performance in Organizations. The book's central thesis is fairly simple: When you try to measure people's performance, you have to take into account how they are going to react. Inevitably, people will figure out how to get the number you want at the expense of what you are not measuring, including things you can't measure, such as morale and customer goodwill...

But anyway, back to Austin, the Harvard professor. His point is that incentive plans based on measuring performance always backfire. Not sometimes. Always. What you measure is inevitably a proxy for the outcome you want, and even though you may think that all you have to do is tweak the incentives to boost sales, you can't. It's not going to work. Because people have brains and are endlessly creative when it comes to improving their personal well-being at everyone else's expense.

As some of your workers substitute making the most of an incentive program for serving customers the best way they know how, the customer experience will suffer. Your best employees will find themselves fighting with incentive seekers to keep the business on track. Meanwhile, they will begin to lose faith in your judgment.

- Joel Spolsky, 'How Hard Could It Be?: Sins of Commissions'.