In light of current discussions about executive performance bonuses and incentives, and exceptional payments for personal items and services, I thought it would be worthwhile to take a look at the possible impact of incentive and rewards systems on the quality of our decision-making, the effect on workplace performance and sustainable business practices.
This applies to incentives paid to salespeople and other employees, as well.
Several years ago, I read a very interesting book called Punished by Rewards: the trouble with gold stars, incentive plans, A’s, praise, and other bribes. It’s written by Alfie Kohn, who is an expert on human behaviour, education and parenting.
Kohn writes: “Our basic strategy for raising children, teaching students, and managing workers can be summarized in six words: ‘Do this and you’ll get that’.”
“We dangle goodies (from candy bars to sales commissions) in front of people in much the same way that we train the family pet.”
Incentives can lower the quality of work
Kohn compares this incentive system with manipulation, and research shows that although this might work in the short-term, it fails in the long-term, and leaves a trail of harm on work outcomes and the human psyche.
Kohn shows that people produce inferior work when they are enticed with money, grades or other incentives.
Daniel Pink talks about this issue as well in his book Drive: “The more prominent salary, perks, and benefits are in someone’s work life, the more they can inhibit creativity and unravel performance.”
But the inferior quality of work is only one side of the problem.
We also need to talk about the consequences of flawed and often unethical rewards systems, and how they affect people’s ability to make good decisions and do right by others.
The growing body of research shows the more organisations rely on pay-for-performance plans, the worse things get for everyone.
Just think about the tragic fallout for customers and communities after the banking royal commission shone a light on some bank’s self-serving incentive programs.
Executives’ bonus and rewards
Executive bonuses have been growing dramatically since the 80s.
Actually, CEO compensation has grown 940% since 1978.
This is in stark contrast to the 12% growth of the typical worker’s compensation and the accompanying rise in cultures based on greed.
And this is in spite of research that shows companies that paid CEOs “higher equity incentives had below-median returns”.
To complicate things further, there are also discretionary rewards, not linked to particular outcomes, just for ‘being’.
This system is difficult to change, given that the people setting these payment plans — the boards and executive teams — are the very ones ripping the benefits from their businesses at the expense of everyone and everything else.
Sales rewards and incentives
I have written before about the issues of commission-only selling or very low base salaries with high variable payments and their negative impact on sales performance, buyers’ experience, customer retention and sales cultures.
Return to intrinsic rewards and motivation
We all have the basic drive to address needs such as hunger, thirst and shelter.
We also respond or react to punishment and rewards systems in our environment, on which performance incentives are based.
But scientists have discovered a third drive, intrinsic motivation, which comes from within ourselves.
Intrinsic motivation is the act of doing something without any obvious external rewards.
You do it because it’s enjoyable and interesting, rather than because of an outside incentive or pressure to do it, such as a reward or deadline.
This is where creativity, innovation and opportunities spring from. This is where the joy of work and learning springs from.
The performance incentive industry, and business world in general, haven’t caught up with this new understanding.
As Daniel Pink says: “If we want to strengthen our companies, elevate our lives, and improve the world, we need to close the gap between what science knows and what business does.”
We must reset and find better ways to work together and return to our natural human roots of curious, self-generative learners and pro-social helpers who work for fairer better outcomes.
We need to refocus on the intrinsic joy of overcoming challenges, learning something new, helping others and so on. This is our natural state.
Let’s take a leaf from the many who have researched, studied or collated the science underpinning human motivation in children and adults alike, such as Dr Maria Montessori, Alfi Kohn, Daniel Pink, Richard Ryan, Edward Deci, Martin Seligman, Adam Grant, Mark Lepper, David Greene and more.
While it will take courage and fortitude to adjust and change, we need leaders and boards to stand up and do the right thing for us all, because the writing is on the wall, and most of us don’t like what we see.
Remember, everybody lives by selling something.