From the Editor: Dump Incentives

I’ve typically seen that in more organizations than not, it’s incentives or compensation that’s expected to drive employees to deliver more, better and faster. But is this a good way to keep a team going forward?

By Vijay Ramachandran
Opinion Apr 24th 2012

Anyone who runs a team or a business will tell you that the three most complex conundrums are the recruitment, motivation and retention of talent. For a while, let’s focus on the issue in the middle, so to speak, on how you can inspire your staff to greater heights.  While reams of paper have been expended on this subject, from how to lead by example or how to give staffers a ‘challenging’ job to do, I’ve typically seen that in more organizations than not, it’s incentives or compensation that’s expected to drive employees to deliver more, better and faster.

But is this a good way to keep a team going forward?

Over a dozen years ago, the company I worked for then was a start-up carved out of larger group. The CMD was visionary, inspirational and very different. In a bid to get our division off the ground fast he came up with a package of incentives for team leaders tied to various deadlines and milestones. On paper, a great way to kick-start operations. Again, on paper, a really good method for the team to co-operate and get things done.

But that’s not how the dice rolled. Every team leader got so focused on his or her goals, that in the resultant chaos they lost track that the company was nothing more than the sum of its parts. Myopia became so much a part of our DNA, that shutters came rolling down three years after we launched operations.

I bet you’re thinking, how can one lousy example prove that incentives are a rotten option?

Bear with me.

In 1945, German psychologist Karl Duncker cooked up what is now known as The Candle Problem. He handed out three objects: a candle, a box of drawing pins and a match-sticks and asked his subjects to fix the candles on a cork-board wall without any additional elements, while ensuring that when lit, the candle wouldn’t drip wax on the table below.

The only way to do this successfully is to dump the drawing pins out of the box; pin the box to the wall; light the candle and use the box as if it were a candle-holder.

Incidentally, people found it much easier to get to the solution if the drawing pins weren’t in the box to start with. Because, when the pins were in the box, participants in the experiment saw it only as a pin-box, and not something they could actually use to solve the problem. This mental block or bias is called “functional fixedness”. It’s what comes in the way of out-of-the-box thinking.

Then some years later, Prof. Sam Glucksberg, added a twist to The Candle Problem – he offered a financial incentive for solving it. You’d expect that this would spur participants to do it faster.

It has the opposite effect, the incentive makes people slower! In fact, the higher the incentive the slower people get.

And why is this? Because what psychologists have found is that with straight, simple, routine and repetitive tasks financial incentives work perfectly well and are a great motivator.

However, where you require creativity or conceptual thinking or an ability to think out-of-the-box, the increase in focus that a financial incentive entails creates a kind of myopia to the obvious solution.

So, what you get with doling out cash incentives to your salesfolk is a bunch of people with single-minded determination, who can be pretty clueless about what to do when the sale requires thinking laterally or ingeniously—like when an economic slowdown crimps IT spend.

As author Daniel Pink  states in his recent book Drive: “too many organizations… still operate from assumptions about human potential and individual performance that are outdated, unexamined, and rooted more in folklore than in science. They continue to pursue practices such as short-term incentive plans and pay-for-performance schemes even in the face of mounting evidence [which shows that such practices] usually don’t work and often do harm.”

What do you feel about incentives? Do write in and let me know.