Unintended and Perverse Outcomes

A colleague from the Australian Department of Defence (thanks Hayley!) recently sent me a link to an article from the Canberra Times about “Losing our way: How the cult of the KPI has damaged our moral compass”.  This article is partly in response to recent revelations in Australia from the Banking Royal Commission and the Victorian State Police (one of the 7 Australian state / province police departments).

Evidence presented to the Banking Royal Commission showed that Commonwealth Bank staff had inappropriately set up thousands of children’s bank accounts (often called Dollarmites accounts) either using their own money or the bank’s money to meet aggressive targets tied to an incentive scheme.  Commonwealth Bank staff would do so when parents had signed up their kids for school banking, but had not deposited money into the account within 30 days.  If no deposit was made, the sign-up would not count towards sales targets and financial rewards.  For disclosure, my children have Commonwealth Bank Dolomites accounts, however, all deposits have come from their family (see Dollarmites bites: the scandal behind the Commonwealth Bank’s junior savings program for more information).

For the Victorian State Police, The Age newspaper revealed that Victoria Police officers falsified 258,000 roadside alcohol breath tests over 5½ years (about 1.5% of all tests carried out during that time) by inflating breath test bags themselves to meet quotas noting there were no financial incentive for officers to fake tests (see How the Victorian police faked breath tests for more information).

The reason I am bringing it up in a Performance Based Contracting (PBC) blog is that these outcomes are familiar traps for new PBC practitioners resulting in unintended or perverse outcomes.  Specifically, the pitfalls identified in the article mirror our PBC pitfalls being:

  1. Avoid using a single quantitative performance measure – instead, use a variety of objective / quantitative and subjective / qualitative performance measures including measures for enterprise performance and behaviours (see The Allure of a Single Measure and Objective vs. Subjective Performance Measures).
  2. Avoid using only monetary performance measures – instead, use a variety of rewards (positive – ‘carrot’ – incentives) and remedies (negative – ‘stick’ – disincentives) as part of your overall Performance Management Framework (PMF) including measuring at a variety of levels and rewarding enterprise performance and behaviours (see When is a KPI not a KPI).
  3. Avoid using stretch targets – instead, make sure the performance is achievable regardless of whether a reward or remedy (see Setting the Performance Levels (Part 1, Part 2 and Part 3) and Stretch Goals).
  4. Avoid ‘setting and forgetting’ your KPIs – instead, use the performance measures and PMF as part of an ongoing discussion on past, present and future performance requirements and achievements.

So as a reader of this blog I hope you concluded that these perverse outcomes were highly likely since, from a behavioural economics and performance management design perspective, they were all unfortunately setup to fail.

The key for each of you is to make sure that you learn the lessons described here and avoid the same pitfalls in the design of your PBC.

This entry was posted in Behavioural Economics, Case Study, Incentives, Outcome and tagged , , , , , , , , , . Bookmark the permalink.

2 Responses to Unintended and Perverse Outcomes

  1. Pingback: Perverse Incentives – Part 1 | Performance Based Contracting (PBC) Blog

  2. Pingback: Perverse Incentives – Part 2 | Performance Based Contracting (PBC) Blog

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