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One Coin – Two Sides – Incentive Good or Incentive Bad?

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sides of coin

I love when the stars align and two conflicting pieces of information on incentives and rewards hit my reader at the same time.  It is a great reminder that what I (we) do isn’t easy and requires a certain amount of expertise.  Expertise that only time and failure can bring (and I have ample amounts of both…)

First – Incentives Don’t Work

Today on Harvard Business School Working Knowledge I saw this headline: “The Dirty Laundry of Employee Award Programs: Evidence from the Field.”

The paper outlines an “experiment” where they tested the impact of rewards on attendance at an industrial laundry plant.  The results from the study:

  • In the study, two highly valued employee groups – the most productive workers and the most consistently punctual workers – suffered a 6-8% decrease in productivity after the award was instituted. This finding is remarkable because it suggests that awards for one type of behavior have the potential to “crowd out” positive behavior in a completely different realm.
  • This research suggests that non-monetary but extrinsic rewards such as corporate awards act more like monetary rewards than they do intrinsic motivators such as love for the job or empowerment through autonomy.
  • Award programs with a low likelihood of winning may be ineffective because employees do not habituate good behavior, and instead lead to a highly strategic response from employees.

Second – Incentives DO Work

And then I see this:  “Incentive program gives students cash for passing AP exams.”

In this discussion Indiana students who score a 3 or better on the 5-point Advanced Placement test, will get a check for $100 and so will their teacher.  The program is based on a similar program run in Dallas since the early 2000s.  I love how they bring in the old Alfie Kohn “rewards kill intrinsic motivation” discussion and yet the results seem to show that the incentive is actually improving scores and increasing the number of students signed up for AP (advanced placement) classes – the goal of the program.

Why The Disconnect?

These kinds of stories are great because they give us the ability to see the differences in the application of incentives, the differences in context for the programs and the differences in the objectives.  We can learn from these “counter intuitive” outcomes.

And here’s where we come down…

The Attendance Program – Bad Design

In the first case the incentive was on behaviors that are not what I would consider skill based or even effort based.  The incentive was awarded for what I would consider “minimum standards of performance.”  The incentive is on attendance.

Hey – here’s a news flash – you get PAID to show up.  You don’t get an incentive to show up.  You get FIRED if you don’t.

Let me ask this – do you give your kid an incentive to tell the truth or do you punish them for lying?  “Here’s some candy Johnny – thanks for telling the truth.  Remember, if you lie you don’t get any candy.”

That is a bad application of an incentive.  It’s no wonder absenteeism went up with the program was started – the program basically rewarded people for increasing their attendance.  Therefore, those that were coming in on time had to NOT come in on time in order to “increase” their scores.  Bad, bad, design.  But we’ll put this out as a testament to how bad “incentives” are in general instead of a study on bad program design.

I’ll say it until I’m blue in the face – like a scalpel – incentives are simply a tool.  In the wrong hands it is a terrible thing – but in the right hands it is a very effective option.

The School Program – Breaking Inertia

The reason the school program worked is that it was designed to do one thing – break the inertia around signing up for AP classes and taking a test.  It didn’t try to do too much – just enough to allow the students to see they COULD succeed.  Then they let nature take its course.  Once you break inertia on a behavior you have much better chance of influencing continual success without the “reward” that was initially required.

The school incentive targeted the one thing that was critical in getting students to sign up for AP classes (and do better on the tests) and that was… wait for it… SIGN UP FOR AP CLASSES.

That simple act changed attitudes, created new “norms” for the kids and put them in a situation where they could succeed.

Before the incentive there was little incentive to even try.  With the incentive they tried and for some it was the point where they realized “I can do this.”  That is what really drove future performance not the incentive.

All About the Application

As usual – the real story is in the application of the incentive and not the incentive itself.  It’s not about the reward.  It’s not about the audience.  It’s about knowing when and how to leverage this powerful tactic within your business strategy.

Don’t write off incentives based on one article.  And don’t use them exclusively because of another.

Take the time to understand the impact they have and apply them correctly.

Or – call us.  That’s a good option too.

 

6 Responses to “One Coin – Two Sides – Incentive Good or Incentive Bad?”

  1. Rory Trotter says:

    Thanks for sharing this, Paul.

    I have a lot of energy around designing incentive programs right now. Do you have any suggestions on books I can read to learn more? As far as I can tell you’re something of a guru on this subject, so any help you can provide would be appreciated. I mostly work in the realm of executive comp, and don’t have a ton of experience around plan design on an enterprise level.

    Good post – and keep writing.

    Rory

    • Paul Hebert says:

      I don’t know of any good books on the subject of incentives in the way that most companies apply them. There are books on psychology and influence (Nudge, Influencer, Drive, Influence – Power of Persuasion, Change or Die, Sway) and of course this blog. Googling it will only get you confused as there are 10 different ways to look at any incentive and you’ll hear conflicting opinions depending on what the person is selling.

      Typically I deal in the “non-cash” arena so I’m not one to lean on when it comes to cash or true compensation structures. While some of the psychology behind how to package and structure cash/non cash are similar – there are legal things I’m not aware of in the cash/stock/bonus world. My go-to person on Compensation is Ann Bares – @AnnBares and blogs at Compensation Force and Compensation Cafe. She’s the comp guru.

      More than happy to chat if you want – you know how to reach me! Good luck!

      • Rory Trotter says:

        Hi, Paul.

        Thanks for the response.

        I have a lot of energy around both monetary and non-monetary award, but the non-monetary award side is new to me and I’m still working through how the two sides work together in concert… and to what degree one considers non-monetary award for employee population like commercial people who may be less incentivized by them.

        Situational application is a topic I really want to get into, and it sounds like some of the books you suggested might help me with parsing that out.

        Thanks again for sharing. After I’ve read up on the subject some more I think I’d like to take you up on that chat.

        Best,

        Rory

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