Bad incentives create bad behaviour

Bad incentives create bad behaviour

6 months ago 0 0 218


We use incentives all the time to shape behaviour.  From our kids at home, to employees, to people we have just met, it is almost human nature to offer incentives to encourage specific behaviours.  However, like most things we do without really thinking them through, there is a dark side to incentives that often gets people stuck.

Consider what an incentive might be – it might be the supply of some positive reward such as financial, social or relational.  It might also be the removal of punishment.  Often if people know that some punishment comes unless they demonstrate the behaviour, this acts as an incentive for this behaviour to be displayed.

We often simply deploy incentives without thinking – in fact, the culture of the group that we are in often dictates what will be incentivised and how.  For example, if the culture can be defined as all the behaviours between what is accepted and what is valued, then we can see that in any group the behaviours that are ‘valued’ are often incentivised, and the behaviours that are not accepted are punished (so the ones that are acceptable the punishment is removed), then culture is nothing more than an unconscious incentive system.

But incentives have a dark side.  Think about the recent banking royal commission which heard that, in chasing massive bonuses, bank employees would behave deplorably (charging dead people service fees, for example).  And this describes the first decision point in incentives that get people into trouble:

Are you incentivising the outcome or the action?

If you incentivise the outcome, then this creates significant opportunity for innovation in how the outcome is reached.  If the culture and controls are poor, this innovation may lead to inappropriate behaviours (including illegal or immoral actions) to reach the outcome, and receive the incentive.  If the behaviours and innovation are constrained by culture, ethics and values, then this creates enormous scope for learning and development.  This innovation can be a key developer of competitive edge and also the basis for evolving into being a disruptor (as you do now what others do not).

On the other hand, if you incentivise the actions, people will deliver on the ‘behaviour’ and the outcome may or may not be delivered.  This provides conformity, but if the action does not have a direct causal link to the desired outcome being generated, then you are leaving the desired outcome to chance.  The focus on action as the incentive point is critical when we need consistency of action, and where process is clear and stable.  Where culture is uncertain or actions that are innovative cannot be properly constrained, then identifying and incentivising specific actions controls against negative consequences.

Often, when we set an incentive around an outcome, we have not actually confirmed that the person or team is capable of even completing it.  The incentive can be seen to change (hopefully increase) motivation, but it does nothing to confirm if the skills are present to deliver the behaviour, or if the infrastructure exists to support its delivery.  For example, if you offer me $10.00 to juggle, it might increase my motivation to juggle.  If I cannot juggle, or have no juggling balls, then regardless of the size of the incentive, you will never see ‘juggling’ delivered.

When we focus on incentivising actions, people will do only the actions incentivised, and will do the minimum required to reach the behavioural benchmark.  Like setting a sales rep a quota of ‘6 calls a day’.  They may be capable of 8 calls, but they have reached their quota, it is in their interest to now stop.  Continuing may impact their ability to deliver 6 calls tomorrow. 

This is also a problem with capped incentives in business.  If there is a top limit that a person can earn from an incentive scheme, it is in their interest to just reach that amount, and ‘bank’ the rest for the next time period.  Ensuring that there is no cap ensures there is continued value to the staff member to keep driving performance outcomes.

How incentives create perfectionism

We develop perfection in our kids often through the unconscious application of incentives.  By ‘rewarding’ the outcome, we praise our kids for getting a great score on a test, for example.  When they don’t get the high marks they get ‘faint praise’, or they learn to apply punishment (self talk etc) to themselves.  Now there is a benchmark set on what outcome will get praised.  When this is uncontrolled, it builds a pressure for high marks to be delivered on every test, and ‘perfectionist’ outcomes are externally – and then self-rewarded over time.

Changing the nature of incentives in such a model can help bust perfectionism.  By praising the effort applied, they learn to apply effort.  By praising the skills and strategies they have employed, they learn to innovate and consciously select the best skills and strategies for the task.  By teaching them that the outcome is not fixed, but dependent upon these two factors that they control (and are incentivised for using) then the ‘praise’ of the outcome is praise for demonstrating that the effort and strategies have been successful.

How incentives destroy culture

Often organisations want outcomes, and incentivise these without consideration of the behaviours that this will generate.  If these actions lead to the desired outcomes, then they can be seen by the organisation as valued (by being rewarded).  As such, behaviours which go against the stated values or culture of the organisation can now become ‘commonplace’ behaviours, not only seen as acceptable, but rewarded.  They then become enculturated in the business.  Often, these behaviours are not in the desired cultural frame of the business and lead to the company developing a ‘culture problem’ over time.

How incentives destroy passion

There are 2 types of motivation – extrinsic, where the motivation is applied from outside (like what happens with incentives) and intrinsic, where the person is already motivated and generates the motivation from their love or passion or purpose.  When we add extrinsic incentives to situations where people are doing something because they love it, we can commoditise their passion, and diminish their experience of it.

Consider where someone loves knitting jumpers and giving them to family and friends.  If you now paid this person $50.00 per jumper, then each jumper becomes a ‘paid task’ rather than a thing of love.  This situation is often seen in small business start-ups where the person loves doing something, and they build a business around it.  Now they get paid (incentivised) for delivering it – what they used to love is now a commodity action. 

By knowing that you can destroy intrinsic motivation with extrinsic incentive, then finding what to incentivise (even with your praise) can make a big difference.  Simply continuously praising what they love puts pressure on the intrinsic motivation.  Think about people who love to paint – but no longer do in case it is ‘not good enough’ for others to see – in case they will not get the extrinsic reward that they have been taught is important.  Instead, praising aspects of the work, efforts and strategies can be effective.

What can you do?

The biggest problem with incentives in that we use them without too much thought.  We want a particular behaviour or outcome, so we attach a particular incentive to it.  What we fail to do is understand the consequences of that incentive.  So what we can do when we notice ourselves ‘incentivising’ outcomes or behaviours is simply to stop and ask ourselves ‘what are the consequences of this incentive process?  Perhaps you will find other things to incentivise, or different ways to incentivise it, to better achieve what you actually want.

If you are struggling with driving high performance, then perhaps the incentive processes you use could be a contributing factor.  Contact me for a confidential first chat about your circumstances, and to see it the Bigger Game approach can help make a difference for you.  Email phil@thebiggergame.com.au now.

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