Measuring results and basing employee evaluations and compensation on them is important. However, you risk killing their intrinsic motivation:
Intrinsic motivation is your own, natural desire to do things well. People usually start out with a lot of intrinsic motivation. They want to do a good job. They want to help people understand that it’s in their best interest to keep paying AOL $24 a month. They want to write less-buggy code. Extrinsic motivation is a motivation that comes from outside, like when you’re paid to achieve something specific.You also risk having your employees focus too much on the metrics, to the exclusion of what really matters:
Intrinsic motivation is much stronger than extrinsic motivation. People work much harder at things that they actually want to do. That’s not very controversial.
But when you offer people money to do things that they wanted to do, anyway, they suffer from something called the Overjustification Effect. “I must be writing bug-free code because I like the money I get for it,” they think, and the extrinsic motivation displaces the intrinsic motivation. Since extrinsic motivation is a much weaker effect, the net result is that you’ve actually reduced their desire to do a good job. When you stop paying the bonus, or when they decide they don’t care that much about the money, they no longer think that they care about bug free code.
Another big problem with Econ 101 management is the tendency for people to find local maxima. They’ll find some way to optimize for the specific thing you’re paying them, without actually achieving the thing you really want.When it comes to dealing with people, be careful with metrics and incentives.