Most everyone has heard Peter Drucker’s famous dictum “What gets measured gets done”, the implication being that unless specific behaviors and outcomes are measured they aren’t likely to be given much attention. In this month’s HBR, Dan Ariely suggests that this notion of measurement-driving-behavior explains many of the problems with current CEO behavior and suggests a solution:
A loose consensus has formed around the idea that basing CEO pay on, say, five years of stock returns would eliminate some of the reckless decision making that led to the Great Recession. But I suspect that even if you could build a compensation plan that focuses on long-term shareholder value, you’d solve only part of the problem.
That’s because such a scheme still ties CEOs’ motivation to one fickle number—company share price—and assumes that pay alone motivates chief executives to perform.
Any number of things can motivate CEOs—peer recognition, for example, and even a desire to change the world. In fact, CEOs usually have all the money they need. Why then does it seem that they care more about stock value and the compensation it produces than those other forms of motivation?
The answer is almost uncomfortably simple: CEOs care about stock value because that’s how we measure them. If we want to change what they care about, we should change what we measure.
Ariely goes on to argue that, in general, people align their behaviors with the criteria that others judge them on. He suggests a number of additional metrics that CEO’s performance should be judged by, such as jobs created, pipeline of new products and patents, satisfaction level of customers, and trust in your company and brand, but says that these are difficult to measure.
I largely agree with Ariely, but slightly disagree on two points:
First, it isn’t simply that what gets measured gets done, but rather what gets measured and valued gets done. It is a slight difference, but an important one. Businesses today are flush with data, statistics, metrics, and dashboards. The decision as to which of those metrics to value, i.e. to use as a measuring stick of employee (and, in this case, CEO) success is an important one. Take an example from baseball. For decades, managers, talent scouts, and front office executives paid little attention to walks and on-base percentage. Both were measured, but they weren’t properly valued–players with a high number of walks and a robust on-base percentage were not compensated at a high level because of their performance in these two areas. It isn’t enough to measure–specific measures must also be publicly valued in order to affect behavior in the way that Ariely suggests. The issue of what gets valued is an issue of culture change to a large extent–it certainly isn’t easy, but without it measurement will not affect behavior.
Second, many of the items that Ariely suggests are quite measurable. My current employer, Gallup, is a global leader in the science of measuring customer satisfaction (or, as we would argue, customer engagement) and brand confidence or trust. Specifically, Gallup has developed metrics for both that have been validated in relation to business outcomes (e.g. customer retention, profitability, etc). Often times we assume that things are inherently difficult or impossible to measure and, therefore, fail to measure them at all (to be fair, Ariely doesn’t suggest this, he simply states that it is more difficult).