The trouble with incentives and other bribes

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 incentives 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.’ by Alfie Kohn, who writes and speaks widely on human behavior, 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, quality of thinking and desire to learn and innovate

Kohn compares this incentive / rewards 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”.

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 orgsanisations rely on pay-for-performance plans the worse things get for everyone – just think the tragic fallout for customers and communities from the Banking Royal Commission with their self-serving incentive programs.

Executives’ bonus and rewards

Executives’ bonuses have been growing dramatically since the 80’s. Actually, CEO compensation has grown 940% since 1978. This is in stark contrast to the 12% growth of the typical worker compensation, and this is in spite of research that shows that companies that paid CEOs “higher equity incentives had below-median returns”, plus the accompanying rise in cultures based on greed.  

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

We 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

While we all have the basic drive to address needs such as hunger, thirst and shelter, we also have been responding or reacting to punishment and rewards system in our environment on which the performance incentive industry is based; however, scientists 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, opportunities spring from. This is where the joy of work and learning springs from. The performance incentive industry and business world hasn’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, pro-social helpers who work for fairer better outcomes. 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 for all to see and most of us don’t like what we see.

Remember, everybody lives by selling something.

Related topics

Unethical Selling, not Selling, should be on trial at the Banking Royal Commission
The rise of Ethical Selling in the new world order: The history of Sales Methodologies, revised & updated
Why a Fair Exchange of Value goes beyond exchanging money for goods

A year ago

Gratitude and materialism