Has Pay for Performance Had Its Day? the Way to Get Your Employees to Focus on Both the Present and the Future Is to Adjust Your Culture and to Weaken Your Financial Incentives
22 Sep 2002-pp 46
TL;DR: In this paper, the secret of persuading people to focus simultaneously on developing new businesses and managing current operations may be to rely less on pay for performance, since companies that achieve both objectives de-emphasize performance pay or use it in a more nuanced, less intense manner.
Abstract: Pay for performance has these days achieved the status of a management mantra. A generation of executives, motivated by performance-measurement systems linking their actions to results and, ultimately, to compensation, has embraced the creed and practice of making assets "sweat." To continue flourishing, however, companies need to innovate as well as to exploit their existing assets. Yet most find it very hard to motivate their people to develop new business ideas and, simultaneously, to manage current performance. The natural reflex might be that people should receive higher pay for innovating effectively. But our research (1) suggests otherwise. Surprisingly, the secret of persuading people to focus simultaneously on developing new businesses and managing current operations may be to rely less on pay for performance. In fact, companies that achieve both objectives de-emphasize performance pay or use it in a more nuanced, less intense manner. Crucially, they combine it with an unusually inclusive culture. In these companies, employees feel that their interests and those of the business are much the same, so they naturally try to do what is best for its current and long-term welfare, just as they do for themselves in their personal lives. Pay for performance may still have an important job to do in such a culture, but as a supplemental boost rather than a primary driving force. Encouraging growth and performance With few exceptions, corporate incentive schemes encourage managers to concentrate either on executing current tasks or on developing and implementing new business ideas to fuel future growth, but not both. Most such schemes are designed to motivate current performance: retail organizations, for example, tie rewards to current sales, manufacturing companies to production costs and volumes. In such companies, the need to meet performance targets leaves people with little time to innovate. As one harried manager in a global industrial company put it, "We are very welcome to do innovative stuff--after 11:30 PM." Incentive mechanisms emphasizing current performance tend to be more common because measuring the familiar tasks that boost it--the exploitation that leverages existing competencies--is so much easier than measuring the exploration and experimentation that may lead to future growth. (2) So, for example, a company that wants to motivate its sales representatives to sell more goods or services will track how many contracts its agents close, adjust the scores for differences beyond their control (such as the number of customers in each area), and reward them accordingly. Effort and score are usually clearly linked, so the company can expect agents to work hard if high scores are well rewarded. But the achievements of these agents would be a lot harder to measure if the company wanted them to bring back ideas for new product offerings based on the changing needs of its customers. A simple tally wouldn't do. since it might be years before an idea's real value could be assessed. The company would also have to adjust for more elusive factors, such as the willingness of customers to provide information about their preferences. All this is so difficult to quantify that to use formal incentives effectively a company would have to monitor, in minute detail, the way each sales agent actually behaved with customers. And performance in highly exploratory tasks--biochemical research, for instance, or scenario planning--can't really be measured at all. Who knows, in advance, which experiments will yield fruitful results or which scenarios will yield valuable insights? Proxy measurements can give a rough idea in some contexts. Management consultants, for example, who often work in teams, use peer observation to assess one another's ability to come up with new ideas. But few companies have a performance-management system that assesses how well employees deal with growth-oriented tasks as accurately as it assesses their current performance. …
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01 Jan 2004
10 citations
Cites background from "Has Pay for Performance Had Its Day..."
...Another theme relating to the management of people is the use of incentive mechanisms to stimulate entrepreneurial behaviour (Christiansen, 2000; Day et al., 2002; Jennings and Lumpkin, 1989; Miles et al., 2000; Pinchot and Pellman, 1999)....
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...Reward and recognition initiatives generally focus on current performance because measurement of the tasks that drive it - the exploitation of existing competencies- is much easier than measuring the exploratory nature of innovative activities that contribute to future growth (Day et al., 2002)....
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01 Jan 2012
TL;DR: In this paper, the authors identified and discussed several factors that will lead to knowledge sharing culture and its impact on innovation capability and their impact on knowledge sharing supports organization in fulfilling customers' needs and wants.
Abstract: Knowledge sharing culture is crucial for increasing organizational competitiveness. Knowledge sharing supports organization in fulfilling customers’ needs and wants. Besides that, implementation of knowledge sharing culture will bring a lot of benefits to the organization itself such as enabling employees to come out with new idea and be innovative in their organization. In this paper, the authors had identified and discussed several factors that will lead to knowledge sharing culture and its impact on innovation capability.
8 citations
TL;DR: Will pay for performance be the answer to national concerns regarding rising health care costs and uneven quality in medicine?
Abstract: What a lovely phrase … pay-for-performance. For those who toil harder, work smarter, go the extra mile, satisfy customers, follow the rules, comply with regulations—the surest incentive of all—more money on payday.
The underlying principle of pay-for-performance compensation, now the rage in health care, is the creation of financial incentives that reward quality-improving, cost-saving, and more efficient behavior by medical professionals.
For many in health care, the question is not why now, but rather what took so long with this pay-for-performance? Isn't it about time that someone recognized the quality work of physicians and hospitals? After all, for years everyone has known that a fee schedule that rewards volume will result in … more volume. Therefore, isn't it a no-brainer that a payment mechanism that compensates clinical excellence will lead to better quality? What's not to like?
Barely five years old, a myriad of different pay-for-performance strategies have already spread from New England to California, and the notion has been embraced by hospitals, physicians, health plans, and employers, particularly large corporations. Medical journals, management literature, the lay press, government leaders, and CEOs all tout the concept as a solution to the ills of health care.
But does pay for performance, long the mantra of corporate America, offer a realistic means for improving quality and efficiency in health care? Or is this another ill-conceived strategy that falls flat on the way from bench to bedside? Will pay for performance be the answer to national concerns regarding rising health care costs and uneven quality in medicine? Or will this payment mechanism founder in a sea of complexity, imperfect data and provider pessimism?
Pay-for-performance made it to Main Street commerce in the 1990s when it emerged as the model for executive compensation, especially in publicly traded, for-profit companies. The idea was logical enough: senior management would have their pay (in the form of salary, equities, or bonuses) tied to quantitative outcomes such as earnings or stock price—presumably a win-win strategy for shareholders and company officials.
Though mentioned in health care management circles as early as 1985, the pay-for-performance movement did not really get going until the creation of the Leapfrog Group in 2000. Prompted by the 1999 Institute of Medicine report1 about the parlous state of quality in American medicine, companies such as General Electric, IBM, General Motors, and Boeing launched Leapfrog with an original mission of disseminating information about quality and fashioning a payment mechanism that rewarded value and efficiency.
Leapfrog quickly settled on three standards for judging hospitals: computerized physician order entry, full-time intensivist staffing of ICUs, and referral to hospitals with high-volume surgical practices. Hospital compliance with these voluntary standards is published annually in the group's Hospital Quality and Safety Survey.
While tangible benefits for complying with these guidelines have been limited, some hospitals in New York have been given bonuses for meeting the standards, and in Seattle employees have had copayments waived at cooperating institutions.
A second major project began in 2003 when Premier, Inc, a medical center purchasing alliance, partnered with Medicare in a pilot project to improve quality in more than 300 member hospitals. The trial involves following patients with myocardial infarction, knee and hip replacement, congestive heart failure, community acquired pneumonia, and coronary artery bypass surgery.
As an example, in orthopedic surgery patients, outcomes such as antibiotic usage in the perioperative period, post-operative bleeding, and readmissions within 30 days will be measured. In coronary artery bypass patients, rates of internal mammary grafts and inpatient mortality will be assessed.
For the first time, there was an explicit financial incentive for participation. Hospitals in the top 10% will receive an additional 2.0% in payments, the second 10% will earn an extra 1.0%, while the lowest 10% can be docked as much as 2.0%.
Bridges to Excellence, originated by General Electric in 2003, goes one step further than Leapfrog by creating a financial bonus system for physicians, at least as pertains to caring for patients with diabetes and heart disease. By adhering to National Committee for Quality Assurance guidelines, a physician can earn $80 for diabetic and $160 for heart patients per year. The guidelines are straightforward—for example, monitoring lipids, blood pressure and renal functions in patients with diabetes; smoking cessation; and antithrombotic use in cardiac patients.
From its origins in New England, Bridges has now spread across the country as the product has been licensed nationally to insurers including BlueCross BlueShield, Cigna, and United Healthcare.
While all these initiatives provided a boost for the pay-for-performance movement, the whole landscape for physicians was jolted recently when the 2000-pound gorilla, namely Medicare, got into the game. On February 1, 2005, Mark McClellan, MD, an economist/internist and the Director of the Center for Medicare and Medicaid Services (CMS), announced that ten physician groups would be enrolled in a pay-for-performance trial, dubbed the Medicare Physician Group Practice Demonstration.2
These practices included the Geisinger Health System in Pennsylvania, Dartmouth-Hitchcock in New Hampshire, Deaconess Billings in Montana, Forsyth in Winston-Salem, the University of Michigan Faculty Group Practice, and others. Unlike the Premier experiment, which involved only technical or hospital fees, this new venture would put physician revenue at risk.
Each group will have a different area of concentration. For instance, Geisinger will emphasize the use of its electronic medical record to improve access to health care information among Medicare beneficiaries in rural Pennsylvania. Other participants will optimize treatment of patients with diabetes, congestive heart failure, hypertension and COPD utilizing means such as home care, preventive health, and disease management programs.
Other programs have arisen that share a similar philosophy. In California, the Integrated Healthcare Association, formed in 1994 by six health plans encompassing over seven million members, is unique in its incorporation of patient satisfaction into the bonus formula for its pay-for-performance initiative. In 2004, more than $50 million was distributed on the basis of clinical quality (50%), patient satisfaction (40%) and computer investments (10%). (Kaiser Permanente initially played an advisory role only, because the medical group incentive payments did not fit with its integrated health plan-medical group structure. However, the two California Permanente Medical Groups began reporting data on clinical and satisfaction measures to the IHA initiative in 2005 and 2006.)
Hospital Compare, a cooperative effort of CMS, the Department of Health and Human Services, and the Hospital Quality Alliance, was introduced in April 2005 to provide the public with quality metrics from every American hospital on their outcomes in patients with myocardial infarction, congestive heart failure, and pneumonia.
So as all these projects show, the pay-for-performance movement is not only alive and well, it's growing. Nonetheless, legitimate concerns have arisen, generally centered on the programs' effectiveness, durability and fairness. Such issues include:
5 citations
Cites background from "Has Pay for Performance Had Its Day..."
...Stifling Innovation In nonmedical industries, with their vastly larger experience, one of the major worries about pay-for-performance programs has been about overvaluing the status quo and underinvesting in new initiatives.(3) A company might find it easy to measure and reward established, easily quantifiable outputs such as sales, but what about strategic planning or new product development? A medical practice can easily tabulate the RVUs for routine CTs of the abdomen, but who pays for the time and effort to develop virtual colonoscopy? Are the short-term gains of increased activity in these conventional areas coming at the expense of a company or medical practice’s future?...
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