Are KPIs Bullshit? Why KPIs for Employees So Often Backfire

Short answer: yes, they can be, and it depends on whether you use them as a measure or as a target.

Used as a measure, a KPI tells you how the work is going. Used as a target, especially one with a bonus attached, it can quietly become the work itself. That’s where a lot of KPIs for employees start doing more harm than good.

Someone at one of the businesses I work with told me about a decision that sums this up perfectly. The details I have to private obviously. The shape of it was simple. One department made a change that saved around $300 a day. On the day, that same change potentially cost another department around $3,000 a day. It was a little more complex than this however I'm sure you've seen something like this before.

On the first department’s numbers, it was a win. Cost down, target hit, job done. For the company, it was a loss ten times the size.

Plenty of people could see it. That’s the part that stuck with me. The problem wasn’t a lack of information. It was that what the people closest to the work could see had no way of changing the decision.

What goes wrong with KPIs for employees?

The trouble with KPIs for employees starts when a measure turns into a target. Hitting the number becomes the job, instead of a sign that the job is being done well.

There’s a well-known line for this, usually called Goodhart’s Law. In anthropologist Marilyn Strathern’s phrasing: “When a measure becomes a target, it ceases to be a good measure.” (Strathern, European Review, 1997)

A KPI is meant to be a window into how the business is going. The moment people’s bonuses, reputations or job security ride on it, they stop looking through the window and start polishing the glass.

Every department wins, and the business loses

This is the version I see most. Each department gets its own KPI targets. Each manager is measured on their own patch. So each manager, quite rationally, does what’s best for their patch.

Save a bit here. Cut a bit there. Push a cost into next month, or into someone else’s department. Every one of those calls can look smart on its own spreadsheet. Add them up and you can have a business where nearly every manager is hitting target while the whole thing goes backwards.

And it tends to be short term. A saving this month is easy to measure. The customer who quietly doesn’t come back, the team that burns out, the equipment that fails a year early: those costs land later, somewhere else, on someone else’s numbers.

The sales floor version

I saw my own version of this in a sales and customer service role. The job was both: make sales, and look after customers when they called with a problem.

Only one of those was really measured, and everyone knew which one. Some of the top performers had little tricks to dodge the customer service calls so they could stay on the sales ones. It was common knowledge across the floor.

On paper, those people looked brilliant. Great numbers, great bonuses. But nobody was measuring the customers who had a bad experience and never came back. If you’d taken a closer look, it’s quite possible the cost of what they weren’t doing outweighed the money they were bringing in.

Those people were doing exactly what the system rewarded them for. That’s the point. If the KPI only sees half the job, don’t be surprised when people only do half the job.

Why bonuses make it worse

Tie a bonus to a KPI and you add something else: a personal financial reason not to listen. That’s the real risk with a KPI bonus.

If a manager’s monthly bonus depends on a cost saving, and someone on their team says “this is going to hurt us down the line,” that’s not just feedback anymore. It’s a threat to their pay. Most people won’t consciously ignore it. They’ll just find it surprisingly easy to explain away.

Researchers have been warning about this for a while. In a paper called Goals Gone Wild (2009), researchers from Harvard, Wharton, Kellogg and the University of Arizona listed the side effects of badly designed goals: people over-focus on the target and neglect everything else, take bigger risks, behave less ethically, and lose some of their own motivation for the work. They also flagged the damage to culture.

The most famous real-world case is Wells Fargo. Employees under what the US Department of Justice called “onerous sales goals and accompanying management pressure” opened accounts and sold products to customers without their consent, over roughly 15 years. The bank ended up paying $3 billion to settle. (US Department of Justice)

That’s the extreme end. Most businesses will never get near it. But the mechanism is the same one playing out in smaller ways every month: people respond to what they’re paid to hit. It’s the flip side of what I wrote about in staff incentives. Rewards shape behaviour, for better or worse, so they need to point at the right thing.

So, are KPIs bullshit?

They can be, and it comes down to how you use them.

There’s plenty of evidence that clear, specific goals can improve performance. Decades of research, led by Edwin Locke and Gary Latham, show they generally lift results, especially on tasks that are simple and easy to measure. (American Psychologist, 2002)

The trouble is that most jobs aren’t simple. They’re connected. What one department does lands on another. What a salesperson does today shows up in retention next year. The more connected the work, the more a single number misses. KPIs for employees work best when they cover the whole job, not just the easy-to-count part of it.

A KPI is an instrument, like the fuel gauge in your car. Useful. Worth checking. Start driving to make the gauge look good, and you’ve lost the plot. As a measure, a KPI helps. As a target, it can absolutely be bullshit.

Signs your KPIs are working against you

If a few of these sound familiar, your KPIs for employees are probably costing more than you think:

• People are hitting their numbers, and the business as a whole isn’t improving.

• One team’s win regularly turns up as another team’s problem.

• Your top performers quietly avoid the parts of the job nobody measures.

• Staff can name a decision that’s obviously costing money, and nothing happens when they raise it.

• There’s a rush at the end of every month or quarter, and a strange lull right after.

• Customers complain about things that don’t show up on any dashboard.

• Meetings are about the number, and rarely about the work behind it.

Our Team Culture Diagnostic is a quick scorecard that helps you see where your incentives, feedback and conditions are lining up, and where they’re quietly pulling against each other.

The fix starts with the people closest to the work

Go back to that $300 saving. The information needed to avoid a $3,000 loss already existed. Plenty of people had it. What was missing was a way for it to travel.

That’s why I think the best counterweight to a KPI isn’t another dashboard. It’s a working feedback system. A clear path for staff to flag when a target is driving a dumb decision, someone who actually responds, and a track record of things changing when they do. It’s the kind of system we build at Base State, and it’s the same idea behind Toyota’s suggestion system.

When frontline staff keep telling you a target is making the business worse, that isn’t pushback on accountability. That’s data. Probably the best data you’ve got, and it’s free.

If a system keeps producing bad decisions, look at the system before you blame the people. So keep your KPIs. Just keep them honest. Measure what matters, watch what people do to hit the number, and make sure someone is listening to the people who can see what the number can’t. Most problems with KPIs for employees aren’t really measurement problems. They’re listening problems.

Frequently asked questions

What goes wrong with KPIs for employees?

Problems with KPIs for employees start when hitting the number becomes the goal instead of the business outcome behind it. People focus narrowly on what’s measured, neglect what isn’t, and departments can hit their own targets while creating bigger costs for others. Tying bonuses to KPIs can make this worse.

Do KPIs improve employee performance?

They can. Research shows clear, specific goals generally lift performance, especially on simple, measurable tasks. They work less well on complex, connected work, where a single number misses the wider impact of people’s decisions.

How do you know if your KPIs are working against you?

Common signs include people hitting targets while the business stalls, one team’s wins causing another team’s problems, top performers avoiding unmeasured parts of the job, and staff raising obvious issues that go nowhere. If frontline staff keep saying a target drives poor decisions, treat it as data.

Want to know what your KPIs are really driving?

Take the Team Culture Diagnostic and you’ll see where your KPIs and your culture are pulling in different directions. If you’d rather talk it through, get in touch and we’ll take a look at what your numbers aren’t telling you.

Culture that drives performance.