Carrot dilemma

Posted: November 12, 2012 by Matthew Hanwell in Incentives, Leadership, Organization

I’ve always had a bit of a dilemma when it comes to incentives. Firstly and fundamentally as has been widely discussed elsewhere (See Dan Pink) do incentives actually accomplish the desired result, for anything more than repetitive tasks? (Scientifically shown not to) And secondly, when establishing an incentivised objective for someone, are you setting an incentive for the person to do their job, to do their job well (aren’t they paid a salary for that), or are incentives for going above and beyond ‘doing your job’? What incentivised objective would you set for an airline pilot – 100% safe arrival of passengers?

We all like to receive more money, a bonus, but I think a bonus is fundamentally different than setting an incentive that has an associated payment? I personally like the idea that the success of an organization is shared with those who contributed to that success in an equitable way, reflecting the value and significance of the individual or collective contribution. However I believe that organizations struggle with their incentive programs. I do wonder how fair and equitable incentives programs actually are within an organization? Which departments/teams achieve the highest pay-outs? Are these the same teams that contribute the greatest value? Are there any companies where the incentive process and payments that result are totally open and transparent, open to the scrutiny of everyone? Perhaps such transparency would uncover and invoke a sense of fairness, or then not!

In some roles, the measurements used for incentives are clear. Sales incentives most obviously, the sales targets are clear as are the actual sales and hence the rewards according to a known set of rules. I did work for a very successful company which didn’t have a sales incentive program, believing that sales people should not be encouraged to sell ‘things’ that the customer didn’t actually need, more of a trusted partner. When a sales incentive program was introduced, it failed (not alone) to turn around a faltering company, and the rumour was that it cost more to implement than it ever paid out! Do companies implement incentive programs and systems because others have them?

Outside of a work context: giving people monetary (or other) rewards (or threats) for them to ‘do as you say’ may be considered blackmail or at least a form of coercion! Would your employees do their job, and do their job well voluntarily, without the need of that incentive? Do incentive programs drive employee engagement, or do incentive programs amount to organizational bullying?

In my experience including incentive schemes within a Performance Management process leads to a significant skewing of the performance management process. The focus shifts to the incentivised part of the performance, the parts that will potentially earn an additional reward, and not on the overall contribution that someone has made to the organization. But this takes us back to one of my dilemmas – Should incentives be set for doing your job.

I wonder why organizations set up Individual incentives! This can divide an organization and inhibit the collective and collaborative culture and environment, especially when the goals and objectives of each individual are not known or poorly, or not aligned. In large complex and dynamic organizations it must be near impossible to maintain a coherent set of objectives. Is the effort of trying doing more damage than the value it is creating? I think I would focus on creating unifying objectives, that require (at least encourage) collaboration and cooperation for them to be accomplished? Perhaps organizations can learn from professional sports teams in this.

I liked the bonus program of my first employer (many years ago); it was simple, clear, open, and tied to the value (revenue) created. As a first time line manager it was easy to administer; I didn’t have to set objectives, no individual incentives and no complex and/or subjective criteria; the team understood what the work was, when a bonus would be achieved, for doing what, and how much it would be (2% of the revenue generated). They could even choose by themselves to hand-over the revenue generating work (and the bonus) to another team member – without any approvals from me. And performance reviews focus on how well you had done you job.

And to conclude: are incentives and incentive programs being used to coerce employees into to at least appearing to be working on activities and having objectives that support the organizations strategy? Aren’t there far more powerful ways of motivating employees?

  1. sleppane says:

    Good points Matthew! I’ve always thought/ considered that everyone has certain responsibilities and activities they perform and receive a salary on monthly basis for completing those. For the extra effort (project like one time effort) you could receive extra bonus or incentive payment when conditions for the payment are met. Rewarding someone for taking care of their routine tasks on average performance (on target 100%) is dumb.
    Incentive schemes or similar should be built on supporting deployments, one-off projects, development- or sales campaigns etc. where extra effort is needed.
    But as you said it is not easy.

    Many companies see incentive systems as a part of “candidate/ employee value proposition” without actually stopping to think what would they like to advance with the extra effort. Most likely it is that annual cycle and related practices just require setting the incentives even if the cause isn’t really known and well thought. “Continuous development” seems to be the easy answer for setting the targets for incentive schemes even if team level and individual level targets would lead to totally opposite directions…

    Building a well balanced incentive system where company targets, team level targets and individual targets are well aligned is not easy. Especially when business is doing well, no major effort is required and company is not trying to enforce a major change that would require everyone’s joint effort…

    • Matthew Hanwell says:

      Thanks Sami, agree acheiving the right outcome from an incentive program is difficult. To me it is all about encouraging the right behaviour. I have experienced of people doing really great work because they felt it was the right thing to do, and would continue that work even knowing that their incentive payments would be reduced as a result, that is commitment.

      • sleppane says:

        Very true! Encouraging the right behaviour and attitude is essential. Linking back to earlier posts and discussions regarding engagement there are many ways and multiple drivers to influence right behaviour successful incentive scheme being one of them. Successful in a sense that it enforces the right things that engaged employees would do anyway because it is a right thing to do.
        Your example is good, I remember doing a lot of little development here and there because I felt it was the right thing to do. I never got any incentive out of those. Although I’m not even sure if the boss always knew what I was up to… But all for the common good.

  2. vpettee says:

    Having worked as a Compensation & Benefits expert I could espouse on the technical layers of incentivizing, but I’ll spare you. Here’s what I really believe. Too often functional experts and business leaders get caught up in complex models with unwarranted sophistication. Whether complex or simple, incentive or bonus – most systems are only as good as the manager who either sets the incentive objectives or determines distribution of the bonus. Or I should say the incentive/bonus is as weak and effective as the manager.

    I like simple and affordable. I also don’t believe all employees are equal. Keeping with my simplicity theme – I believe there are 2 basic tiers. Leaders (not managers) who can significantly influence and impact company outcomes and everybody else who contributes. And everyone else IS the mainstay of the organization.

    Attempting to use incentives to achieve collaboration and group work is unnecessarily complex and burdensome to individuals. I think it creates noise and distracts an employee from their core responsibilites. The moral of one of Aesop’s Fables is “We often miss our point by dividing our attention.” Back to the leader tier….they are the most knowledgable to cross pollinate and understand where collaboration is needed. They should build the opportunities not set all the fish swimming around looking for something that may exist. Another Aesop Fable moral “Catch at the shadows and you lose the substance.”

    IF the company makes a profit, create a bonus pool from the profit. Managers rank their employees by contribution and distribute the bonus among them. If the company does not make a profit, no bonus.

    I doubt incentives actually motivate anyone to do other than achieve their payment. Bonuses reward. No matter what system, there is subjective measurement and it is the exceptional manager who will make all his employees happy.

    • Matthew Hanwell says:

      Thanks Vickie, I agree there is an issue with the over complexity and sophistication of many incentive programs (it becomes a science), and that this doesn’t help managers when either setting incentives or assessing achievement. Less is more!

      Also agree that not all employees are equal, nor is their contribution to the success of the organization. I like the concept of pivotal roles, which may be the same as your Leaders, people who assert more leverage and have greater impact on the outcomes of the business.

      I like the idea and simplicity of a profit related bonus pool, the only difference I would have the Leaders (not managers) decide how this would be distributed, and I would make this open and transparent!

      Thanks again for your comment.

      • vpettee says:

        I think transparency is the key….but I wonder if the majority of managers would embrace or fear it?

        There was a U.S. company I read about (can’t remember their name) that posted all salary increases and bonuses (like some universities used to post test scores) in ranked order. Totally transparent. Probably works best when all employees are physically located in the same place, but an innovative concept. It took a confident and convicted leader to do such a thing.

  3. Tojo Eapen says:

    Very relevant discussion and valuable inputs. Based on lots of discussions, experiences and observations on performance management 🙂
    Organizations should be clear and able to articulate:
    1. Why do we have a performance management system in place?
    2. What do we want to achieve with that?

    As additional question that’s been in my mind recently, related to the second one above:
    If only a minority is happy/engaged and relevant number of people feel disappointed, frustrated and disengaged as result, what impact and value does it have for the organization overall?

    Most of the problems (as indicated in comments above) relate to ‘How’ it’s used and what it results in at the individual level. Transparency is definitely worth considering to build the perception of fairness (fundamental).

    I do think that the models and systems in this area haven’t evolved effectively with time.

  4. Matthew Hanwell says:

    Thanks Tojo for your comment.
    I wonder if any one is measuring the impact of their performance management ‘process’, to what extent does it engage/motivate us, what is the business outcome ?

    I remember reading a few years ago, that a bad career development discussion is far worse than no career development discussion. I think it is very similar with performance and as commented earlier Managers have a key responsibility here.

    Openness and transparency in my opinion bring huge benefits – I always wonder what we are hiding when we don’t have them ?

  5. Jarmo O says:

    Plenty of good points! Imagine if companies would invest as much effort in providing purposeful coaching and on the job learning as they typically do in crafting and implementing incentive schemes… I am convinced the business impact would be significantly higher.

    On transparency, as many organisations move into more networked and loose structures, social media approach to achievement review or individual contribution could be one way to understand who is worth what. Managers have a huge task in getting a good view on employees’ performance but in teams ‘everybody knows who are the most productive and valuable’. Of course it brings along another types of inaccuracies and alignment problems but I think that is where we are heading.

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