Why Incentivizing People with a Revenue Goal is Like Rolling the Dice

As a business advisor and extension of the leadership team, I’ve seen my fair share of companies attempt to use metrics and incentives to drive performance. On the surface, it makes sense: set a goal, reward the team for achieving it, and watch productivity soar. Seems like a safe bet.

 But, as the saying goes, the road to unintended consequences is paved with good intentions. 

Take one of my clients, for example. They implemented a bonus structure for their sales and customer service teams based on hitting a monthly gross revenue goal. While the revenue numbers looked good at first glance, the fallout was hard to ignore. Here’s what happened:

1. Rushed Production and Quality Issues The sales team, eager to hit their numbers, pressured production to complete jobs faster. This led to costly rework when corners were cut, and customers were left dissatisfied with the final product. In the end, what looked like a win for sales turned into a net loss for the company.

2. Burnout and Turnover Production and delivery teams bore the brunt of the push, working overtime to meet unrealistic deadlines. The result? High stress, low job satisfaction, and increased turnover—all in an industry already grappling with a labor shortage.

3. Eroded Margins To meet deadlines, decisions were made that added costs to the job, such as expedited shipping or hiring contract labor. These costs ate into the margins, sometimes turning profitable jobs into break-even or even money-losing endeavors.

These examples are not unique. Research supports the idea that metrics-based incentives can backfire if not thoughtfully designed. In an article from the Harvard Business Review, Alfie Kohn argues that incentive plans often fail because they focus on short-term results at the expense of long-term success. Similarly, FocusCFO highlights four pitfalls of incentive compensation, including fostering unhealthy competition and encouraging employees to game the system.

The Psychology of Incentives

The root of the problem often lies in human psychology. When people are incentivized by a single metric, they’re likely to prioritize that metric over everything else—even to the detriment of the organization. For example, a team rewarded for cutting costs might skimp on quality, or employees chasing revenue goals might neglect quality or service.

A Better Approach to Metrics and Motivation

So, what’s the solution? Metrics and incentives can still play a role in driving performance, but they need to be part of a larger strategy. Here’s what I recommend to my clients: 

1.  Use Balanced Metrics Instead of focusing on a single number, look at a balanced scorecard of metrics that reflect overall performance. For example, combine revenue targets with quality measures and customer satisfaction scores.

   

2. Focus on Leading Indicators Many companies reward lagging indicators like revenue, which is the result of past actions. Instead, incentivize leading indicators—the behaviors and activities that drive long-term success, such as pipeline growth or process improvements that are valued by the customer. 

3. Involve the Team in Setting Goals When employees are part of the goal-setting process, they’re more likely to buy into the metrics and understand their broader impact on the business. Collaboration also reduces the likelihood of gaming the system. 

4. Consider Non-Monetary Rewards Recognition, career development opportunities, and flexible work arrangements can be just as motivating as monetary bonuses—without the unintended consequences.

5. Monitor and Adjust Metrics and incentive programs should never be set in stone. Regularly review their impact, solicit employee feedback, and adjust as needed to ensure they’re driving the right behaviors.

The Bigger Picture 

At the end of the day, metrics and incentives are tools, not solutions. They should align with your company’s values and long-term goals, not undermine them. By taking a thoughtful, balanced approach, you can harness the power of metrics without falling into the common traps. 

 If you’re struggling with incentive plans that don’t seem to work or are causing more harm than good, let’s talk. Together, we can design a system and a dashboard that drives sustainable success for your business and your team. 

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