How rewards & recognition can create unintended fault lines in the organization
a) What should be the basis of setting motivations ? Values & Beliefs, Behaviors or Consequences – Of most of the organizations that we have witnessed, 95% of them tend to operate on rewarding the consequences i.e. performance, output, results etc – in a way that sums up the corporate culture, at least on the subcontinent side, where most of them are ‘how’ organizations, to an alternate ‘why’ organizations (Quoting from book Freedom Inc – the ‘how’ organizations school employees on how to do things, whereas the ‘why’ organizations, they nudge employees to focus on the ‘why’- it would be an guess as which of them will turn out to be more effective).
Having Consequences as criteria for setting up motivations in the organization often leads to a zero sum game, where the winner takes it all & where culture is often an accessory to business – a good to haves rather than must haves, resulting in the current state that most of the motivations are individual focused, rather than team focused. For organizations to be effective, the motivations need to be pivoted either to behaviors, if not to the mixed equation of consequences & behaviors.
A balance here ensures optimality, with significance given performance & behaviors which are critical & essential for the organization to thrive. Outcome and behavior control are necessary because organizations shouldn’t reward employees who achieve results but break the expected behaviors to do so. Neither should it reward people who follow the rules but don’t contribute to the organizational goals.
b) The conundrum of what to incentivize & what to not
The fundamental of behavioral psychology states that higher incentives often lead to higher efforts and higher performance, which is why, organizations often use extrinsic incentives as behavioral interventions. However, linking monetary incentives to behaviors that would otherwise be adopted or performed by entire system or voluntarily, often has the undesired effect of reducing the performance of those behaviors & effectiveness of deploying the motivations – The Harvard study of attendance incentivization at the laundry are based on these lines.
This phenomenon is known as the crowding-out effect of explicit incentives on intrinsic motivation (Gneezy, Meier, and Rey-Biel 2011). The term “motivation crowding out” refers to an undermining effect of rewards.
c) What to recognize & what to reward – its often rewards the results, & recognizing the behaviors – however, it needs to be reversed
d) The Caveat – While we have been stressing above that the best way to get the behaviors you want is to provide rewards for doing them, or at least refrain from punishing people for doing them. What is equally important is that you have to make sure you’re not inadvertently providing rewards for behaviors that you’re trying to discourage.
One has to ensure 2 things are absolutely clear – 1) List of behaviors you want more of and a list of behaviors you don’t want. The importance of responding honestly to this assignment cannot be overstated. For example, you may say you want a culture of quality, safety, and transparency, but do you really? Or do you believe that this is an unattainable, unaffordable goal in view of the financial and operational challenges your organization currently faces?
2) Next, make a list of the behaviors you are currently measuring. Don’t concern yourself at this point with whether your measurements are objective or subjective or whether they’re included in your annual performance reviews. Then compare each of the behaviors on your “more of” and “less of” lists to the list of behaviors you’re currently measuring. Put a circle around the behaviors you are not now measuring. This is your danger list! If a behavior you care about is not being measured:
Once you have ascertained that the behaviors you care about are being measured and discussed in performance reviews, the third step is to determine whether your rewards and penalties support your espoused values. Specifically, with regard to each item on your “more of” and “less of” lists, ask your employees what would be most likely to happen to them if they engaged in that behavior. Offer four possible answers: “I’d be rewarded or approved,” “I’d be punished or discouraged in some way,” “There would be no reaction of any kind,” or “I wouldn’t know what to expect.”
e) Gaming the system – Gaming behaviors are bad for both customers and organizations (Benjamin and Doerr 2017),
To reduce gaming, it is necessary to tie monetary incentives not only to outcomes but to behavior as well. Behavior-based incentive systems reward employees for behaviors that have a high probability of improving the customer experience. A focus on outcomes over behaviors can sometimes inspire employees to deploy more manipulative selling tactics.
For building customer-focused cultures, organizations should consider rewarding different types of behavior over time. Initially, employees might be rewarded for participating in customer relationship training. Next, they might be rewarded for successfully handling unhappy or dissatisfied customers. Later, they might be rewarded for the number of customer problems they resolve or for coaching other employees.