Leadership Malpractice and Pay for Performance: A Deadly Combination

SeriousWoman-GunsAn empty gun is not a deadly weapon.  Neither is a bullet.  Put them together and you have a potential deadly combination. Put leadership malpractice and pay for performance policies together and you also get a deadly combination.  A good example is The Veteran’s Administration.  In 2013 they were criticized for the delays in the processing of benefits on disability claims for soldiers returning from Iraq and Afghanistan.  Veterans were waiting on average 429 days for processing.  This year it was reported by CNN that dozens of veterans have died waiting to see doctors.

Why is this happening to our heroes?  Veterans deserve our very best care and appreciation for their service protecting our freedoms yet they are being treated like less than second class citizens.  Why?   It is a combination of leadership malpractice and pay for performance.

In 2011 the VA paid bonuses to two-thirds of the claims processors.  Their intention was to speed the processing of these claims yet the backlog grew by more than 155 percent.  Why?  Because pay for performance policy has unintended consequences which are often worse than the intended outcomes.

The popular pay-for-performance policy is a form of leadership malpractice. It’s designed to control employee behaviors in order to achieve specific results yet it often causes injury to the customers of the organization.

People want to be rewarded for their hard work and they should be.  However, when leaders make the individual rewards contingent on specific individual goals and/or behaviors this policy crosses the line into malpractice.  Leaders think this policy will increase employee engagement but it instead violates engagement psychology.  The use of contingency pay-for-performance to achieve organizational results is akin to the use of bloodletting leeches by physicians in the 1700’s to cure heart disease.  It was once thought to be effective but it is now completely outdated in the “new” knowledge age.  These typical pay-for-performance policies violate employee engagement and natural law because they:

  • Attempt to control behaviors (e.g. they limit options)
  • Send a message of distrust (i.e. employees would not work on the right things with the right effort without a reward)
  • Limit innovation (there may be a better result employees could work toward)
  • Ignore interdependence (achieving a goal in one area of an organization might cause waste in another area)
  • Increase the probability of dishonesty to achieve a specific goal to receive a specific reward (e.g. people often cheat if they think they need to do it to achieve their individual goals and if they think they can get away with it)

At the VA, the easiest claims were processed first.  Processing these allowed the claims processors to meet or exceed the minimum standards set by the leadership and therefore earn a bonus.  The claims processors focused on their own needs for bonuses and put the needs of the veterans last.

Claims processors found ways to cut corners in order to meet the standards.  This resulted in a high percentage of claims with errors.  When the veterans complained this delayed the claims even more because they had to go back into a review process.

Finally, in the case of veterans who died waiting to see a doctor, the claims processors had created two lists.  One list was on paper and separate from the computer recorded claims.  This allowed the computerized list to show an improvement in the backlog.  This made the VA leaders happy because this change in reporting took pressure off the backlog issue.

Leadership needs to change their thinking and change pay for performance policies away from contingency to reach a goal.  Leadership must begin to embrace systems thinking.  Poor leadership and pay for performance policy nearly always create injury to customers who are supposed to be served best.  In this case they formed a deadly combination.

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