Dollars & Sense
Performance measures shape decisions long before anyone questions the results. In workers’ compensation, what organizations choose to reward can influence the experience and recovery of injured workers.
A claims department finishes the month with impressive numbers. Closure rates have improved, outstanding diaries have decreased and average claim costs are trending downward. Leadership celebrates the performance and employees receive recognition for meeting their targets. Yet those numbers cannot tell us whether an injured worker returned to work successfully, received appropriate treatment or understood what would happen next. A claim can satisfy every administrative requirement while important recovery needs remain unresolved. The troubling possibility is that everyone performed exactly as expected. The organization simply measured something different from what it ultimately wanted to achieve.
The Psychology of What Gets Rewarded
Organizational psychologist Steven Kerr explored this problem in his influential article On the Folly of Rewarding A, While Hoping for B. Originally published in 1975 and revisited in 1995, Kerr examined how organizations unintentionally encourage behaviors that conflict with their stated objectives. Leaders may emphasize collaboration while rewarding individual competition or advocate long-term performance while emphasizing immediate results. Employees learn which behaviors carry consequences through the incentives they encounter. In workers’ compensation, we may communicate the importance of compassion, quality medical care and sustainable recovery while measuring individual performance primarily through claim closures, file activity and cost reduction. The resulting behavior reflects the organizational environment we created.
The challenge is that performance measurement remains essential. Edwin Locke and Gary Latham demonstrated through decades of goal-setting research that specific and challenging goals can improve performance by directing attention, effort and persistence. Clear expectations help employees prioritize responsibilities and recognize progress. A standard requiring timely initial contact may improve responsiveness. A goal focused on completing investigations can reduce unnecessary delays. The question is whether achieving the target also contributes to the outcome the organization actually values. Effective leadership requires distinguishing between measures that demonstrate activity and those that establish meaningful progress.
When the Scorecard Changes the Work
Consider claim closure rates. Closing resolved claims helps administrators manage inventory, maintain accurate records and reduce unnecessary administrative expense. Those are legitimate operational objectives. Problems can emerge when closure volume becomes the dominant measure of professional effectiveness. An adjuster may feel pressure to prioritize straightforward files while more complicated claims receive less attention. Another may pursue a settlement before important questions about future medical needs have been adequately resolved. These are potential incentive effects rather than evidence that such behavior is widespread. A more complete measurement system would examine closure rates alongside reopening patterns, settlement quality and the complexity of the claims being handled.
Average claim cost creates a similar challenge. Financial stewardship is an essential responsibility in workers’ compensation because employers and insurers must maintain sustainable programs. Yet lower spending during an initial reporting period does not necessarily establish that a claim was managed effectively. Necessary treatment could occur later while temporary reductions in payments make current performance appear favorable. Alternatively, timely medical intervention may increase initial expenditures while improving long-term recovery. Leaders should examine how costs develop over the life of a claim and whether decisions support appropriate care. The objective is responsible management of total costs rather than rewarding the lowest number at a particular moment.
Return-to-work measurements deserve equal scrutiny. Organizations frequently track how quickly injured workers resume employment because prolonged absence can have substantial financial and personal consequences. However, recording a successful return without examining its durability provides incomplete information. An injured worker who returns for several days and subsequently leaves because appropriate accommodations were unavailable has experienced something different from a sustained return. Both situations could satisfy a simplistic measurement of initial return-to-work success. Employers should therefore examine continued employment, functional capacity and recurrence alongside the date work resumed. These additional measures help distinguish genuine recovery progress from an administrative milestone.
The Consequences of Incomplete Measurement
Evidence from outside workers’ compensation illustrates how measurement systems can distort organizational behavior. In 2006, Gwyn Bevan and Christopher Hood examined performance targets in England’s public healthcare system. Their research identified problems with the assumption that selected indicators adequately represented overall service quality. They also documented how performance pressures created opportunities for gaming and difficulties interpreting reported success. The findings demonstrate that achieving a target and improving the underlying service are not necessarily equivalent. This research does not establish that workers’ compensation organizations experience the same failures. It does provide a credible reason to examine what happens to important responsibilities when leadership emphasizes a narrow collection of performance indicators.
The issue becomes particularly important when employees have limited control over the outcomes they are expected to achieve. Claims professionals work with injuries of different severity, employers with different accommodation capabilities and jurisdictions with different legal requirements. A complex catastrophic claim should not be evaluated against the same expectations as a minor injury using unadjusted cost or closure comparisons. Similarly, an adjuster managing a disproportionately difficult caseload may appear less productive despite exercising excellent professional judgment. Performance systems that ignore these differences risk rewarding favorable assignments rather than superior claims management. Leaders need to examine the context behind performance before drawing conclusions about individual effectiveness.
Building a Scorecard that Measures What Matters
The Workers Compensation Research Institute offers a useful foundation for broadening these measurements. In its Comparing Outcomes for Injured Workers research, Bogdan Savych and Vennela Thumula examined recovery of physical health and functioning, return to work, earnings recovery, access to medical care and satisfaction with treatment. These dimensions extend beyond the operational information commonly available in claims systems. They demonstrate that injured-worker outcomes can be studied systematically rather than treated as purely subjective considerations. Employers and administrators can use comparable categories to evaluate whether efficient claims handling is accompanied by meaningful improvements in recovery. The goal is to measure the results that operational activity is intended to support.
A practical approach is to pair efficiency measures with indicators capable of revealing unintended consequences. Closure rates can be reviewed alongside reopening rates and file-quality audits. Return-to-work speed can be paired with sustained employment and recurrence information. Financial performance can be examined against appropriately adjusted long-term claim costs and access to necessary care. Contact standards can be evaluated for the clarity and usefulness of communication rather than completion alone. These paired measures are proposed management safeguards rather than a universally validated workers’ compensation scorecard. Their purpose is to prevent any single number from becoming the complete definition of professional success.
Leadership must also consider where performance accountability belongs. Individual claims professionals should receive feedback on responsibilities they can reasonably control, including documentation quality, responsiveness and appropriate coordination. Broader outcomes influenced by employers, healthcare providers and organizational resources may be better evaluated at the team or program level. Comparisons should account for injury complexity, jurisdiction and the maturity of the claim. Vendor performance measures should likewise reflect the quality and results of services rather than relying exclusively on transactions completed. Executives should be evaluated against balanced expectations so that leadership incentives do not contradict the standards established for employees. When performance systems are aligned across the organization, the desired behaviors become easier to reinforce consistently.
There is considerable value in measuring productivity, efficiency and financial performance. Workers’ compensation organizations need those measures to allocate resources and maintain accountability. The opportunity is to recognize that every metric captures only part of a much larger process. A scorecard should help leaders identify where improvement is occurring and where important outcomes are being overlooked. Before establishing the next performance target, organizations should examine what decisions that target will encourage and which consequences it might leave unmeasured. The metrics we reward become the behaviors we get. Leadership determines whether those behaviors produce the outcomes we actually want.
Research Referenced
Bevan, G., & Hood, C. (2006). What’s Measured Is What Matters: Targets and Gaming in the English Public Health Care System. Public Administration, 84(3), 517–538. Research.
Kerr, S. (1995). On the Folly of Rewarding A, While Hoping for B. Academy of Management Executive, 9(1), 7–14. Research.
Locke, E. A., & Latham, G. P. (2002). Building a Practically Useful Theory of Goal Setting and Task Motivation: A 35-Year Odyssey. American Psychologist, 57(9), 705–717. Research.
Savych, B., & Thumula, V. (2018). Comparing Outcomes for Injured Workers, 2017 Interviews. Workers Compensation Research Institute. WCRI Research.
