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Secrets of Human-Capital Management 【August 2013】

 

Doing Incentives Backwards

By David Creelman

 

What do you think of an incentive design that gives someone a goal, but keeps the incentive secret? On the face of things this seems utterly pointless. How does a secret incentive motivate performance? And if you already got the outcome, why hand out your hard earned money to someone who was not expecting a payment? Doing incentive backwards flies in the face of what we learned about using rewards. Yet some people do structure incentives this way. Might there be a good reason for it?


Doing things for the right reasons
Henry J. Evans, author of the best-selling business book - Winning with Accountability: The Secret Language of High-Performing Organizations, is one of the people who uses reverse incentives. For example, he gives incentives for referrals but generally would not let people know about them. I asked him why he would do this; he said it starts with the sense that you want to thank someone for their help and give them something a bit more tangible than just a thank you card. That explains why he would give people something even if they were not expecting a payment; it is a sense of doing the right thing.


However the ‘tangible thank you’ argument does not explain why he would not tell people about the incentive in advance. There is a deeper reason for that; if people are giving a referral because they will get a reward then it may not be an authentic endorsement. He does not want people promoting his work because they are getting a reward, he wants them to do it because they believe in it.


Another example of reverse incentives that Evans cites is a reward given to the consultant who was most successful in a project to bring in new business. Again the reward was an after the fact means of recognition and not the usual carrot of a sales incentive. The reason remained that he wants consultants to be client-focused, and not incentive-focused. The fear is that if you tell people about incentives they will do what it takes to earn the reward irrespective of whether or not it is the right thing for the client.


Thinking outside the Skinner Box*
The mechanistic model of motivating behaviour with rewards has its virtues, however it falls far short of explaining all of human behaviour. Human behaviour is sometimes mechanistic just like a rat in one of BF Skinner’s experimental boxes; but human behaviour is often altruistic, irrational, subtle—or all three. We limit ourselves when we fail to think outside of one mental model.


Reverse incentives are more about building relationships than driving specific behaviours. An after-the-fact incentive signals that the company cares about people and cares about performance. Conversely, traditional incentives are about transactions not relationships; they lock both parties into a contract, human purpose and long-term relationships have no part in normal incentive design. Reverse incentives play to intrinsic rather than extrinsic motivation.


Another example of a kind of reverse incentive comes from the owner of a Canadian construction company. He gave one worker, who landed in a situation where he had a terribly long commute, a gas allowance. Is this compassion or favouritism? It is both and how it is perceived in the company depends on the culture and how specifically it is handled. In this case, in that company’s culture, the message was clear “we care about each worker as an individual.”


What HR can do
There is something to be said for rewards that are unexpected and idiosyncratic. Evans keeps his incentives client-centric, and it is not just because he is a good guy. His unusual use of incentives serves a business purpose: happy clients, happy employees.
We always need to be aware that incentives can do more harm than good. We also need to understand that we can best motivate and direct behaviour if we engage with people in a human way. An accountant may think giving an unexpected reward is a waste of money; that is why reward needs to be driven by HR and emotionally intelligent leaders, not accounting.

 

* BF Skinner was a very influential psychologist in the US. He believed we could understand animal and human behaviour by thinking of people as fairly simple machines whose behaviour was controlled by rewards and punishments. His most famous experiments involved putting rats or pigeons in boxes and get them to push a lever for a reward. While this very mechanical view of animal behaviour has been discredited, his philosophy is still influential in America.

 

 

David Creelman is CEO of Creelman Research, providing writing, research and speaking on human-capital management. He works with a variety of academics, think tanks, consultancies and HR vendors in Canada, the U.S., Japan, Europe and China. Mr. Creelman can be reached at

dcreelman@creelmanresearch.com

 

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