When Rewards Go Wrong Essay Example for Free

When Rewards Go Wrong Essay At the heart of most performance management systems is a reward program. However, even when we are doing everything else right, rewards can go wrong. Here, we explore five ways that external incentives can damage performance, from destroying altruistic behavior to distracting people from the task. Fortunately, most of these downfalls are avoidable. While not every behavior is suitable for pay-for-performance, we can provide rewards that are rewarding, helping to encourage the behavior we value. THE CARROT AND THE STICK are the starting point for creating the behavior that we want. We reward desirable actions and punish, often by removing rewards, actions that annoy. Rewarded behavior becomes more frequent, and punished behaviors eventually disappear. That, at least, is the idea. From economics, which is largely the study of incentives, to behavioral psychology, which specializes in reinforcers, we have academic reassurance that we are pursuing the recommended path. But as anyone who actually tried to put this simple logic into practice will find, it does not always work out as well as desired. We praise a teenager for doing well in her studies, rewarding her with a shopping trip to the mall, only to find that her grades steadily deteriorate thereafter. We encourage a spouse to try to follow our much more reasonable agenda, only to get him or her to dig his or her heels in opposition. We even encounter this mysterious disconnect when we give gifts. Gift givers typically expect a positive association between how much they spend on a gift and how much their gift’s recipient appreciates it. We reason that more money (i.e., a more expensive gift) conveys a greater amount of thoughtfulness. In fact, gift recipients report no such association between the price of their gift and their actual feelings of appreciation (Flynn Adams, 2009). Much like gift givers who expect a greater, more positive outcome proportional to the size of the gift, organizations often find that external rewards such as pay do not garner the outcomes they expect. In fact, sometimes to our bafflement, an incentive program turns out to be a disincentive program, where we are inadvertently reducing the very behavior we try to encourage. Why does this happen? Sometimes it is due to poor measurement: we do not recognize the proper behavior when it occurs or when we get it confused with something else. Most famously, rewarding CEOs with stock options is seen as a way to get the C-suite (the offices of the most senior-level executives with titles beginning with the word chief) to work harder, but this can have perverse consequences. Stock performance is not the same as CEO performance, and to raise stock prices, we actually incented some CEOs to manufacture or make up favorable financial reports. This is why Peter Drucker (Drucker Zahra, 2003) described the practice as â€Å"the well-meant but idiotic belief that executives should have major stakes in the company, the stock options (which I have always considered an open invitation to mis-management)† (p. 11). At other times, rewards do not work because they are not contingent on performance. To the degree rewards are not reliably delivered, so people feel their hard work will not be dependably recognized, we can stop expecting the target behavior altogether regardless of how large the promised reward becomes. For a performance management system to work, people have to trust it. However, neither of these issues of implementation will be our focus. Performance Improvement, vol. 51, no. 8, September 2012  ©2012 International Society for Performance Improvement Published online in Wiley Online Library (wileyonlinelibrary.com) Altruism paints a sunny swath through our society. People act on behalf of others simply for the pleasure of helping. Here we are at our best, whether assisting the disabled or homeless find housing or our coworkers master the company’s new software program. The joy of altruism is inherent in our neurobiological makeup, with separate regions of the brain activated when we are acting altruistically (Fehr Rockenbach, 2004). Unfortunately, this is also part of the problem. There are countless examples of attempts to incent altruistic behavior that in theory should have been effective. Even if someone is intrinsically motivated to perform, adding an extrinsic reward should motivate him or her even more. As it turns out, it does not quite work this way. Frey and Oberholzer-Gee (1997) reviewed the Swiss government’s attempt to get a canton to accept a nuclear waste dump being built near it. Nobody wants nuclear waste, nearby or otherwise. But if you are going to have nuclear power, the waste has to go somewhere, and allowing it to be stored in the vicinity of your backyard is a selfless civic act. Initially, simply on the request of the government, about 51% of the area’s populace was willing to permit its location—altrui sm pure and simple. However, when the Swiss later decided to add a few thousand dollars of yearly stipend to promote more agreement, the percentage of agreement went down, not up, to about 25%. Neurobiologically, by adding an external incentive, the Swiss government framed the question from being an altruistic act, which had sufficient motivation, to one of pleasure and self-interest, which was evaluated in a separate part of our brain and came up short. Under these strictly monetary standards, the few grand that the government was offering was not enough. Later in 2001, Frey along with a new colleague, Jegen, called this motivational crowding theory. Finding scores of examples for everything from the adherence of time schedules in day care services to pay-for-performance schemes, they repeatedly found that extrinsic rewards can push or crowd out intrinsic rewards. Now this is not always a bad thing. If the Swiss government wanted to get agreement well over the 51% that altruism was providing, it could have, but at a high cost. If officials were willing to give every resident a small fortune each year, they might even have people actively moving to that canton. But if you cannot afford the cost of maintaining an extrinsic reward system, then you are likely better off not implementing it at all. The delicate balance between intrinsic and extrinsic motives can be a difficult one to keep. Gary Walters, an expert in psychology and child development, recounts his mistake when trying to encourage his 6-year-old son’s precious interest in chess by giving him a manual on the topic: â€Å"He was reading by then, so I gave it to him. That just killed it. It turned it into schoolwork. There’s a difference between intrinsic and extrinsic interest: the kinds of things you’d do on your own because they’re self-rewarding, as opposed to somebody on the outside telling you† (Bielski, 2012). If he can err, then so can the rest of us. Consequently, if you have people volunteering, developing, self-improving, or engaging in positive organizational citizenship behavior due to intrinsic reasons, you might want to recognize it or celebrate it with unexpected or unofficial rewards but not ones formally contingent on task performance. Leave such altruism as the wonderful gift that people give others. It is not work and should not be treated as such. HOW CAN BE AS IMPORTANT AS WHAT People have desires not only about the rewards they receive but also in the manner they are delivered. For example, company A and company B may pay their workers the same competitive wage, but due to differences in procedure, one is effectively incenting performance while the other is not. But why? There are two major desires regarding the administration of reward programs: a sense of fairness and a sense of autonomy. As the common law adage goes, â€Å"Not only must Justice be done, it must be seen to be done.† This principle extends to reward systems as well (Frey Stutzer, 2005). In the competition for performance between company A and B, you can increase the power of your incentives through three primary mechanisms (Masterson, Lewis, Goldman, Taylor, 2000; McFarlin Sweeney, 1992). First, keep your employees informed about exactly how rewards are administered. Effective reward systems are usually transparent, in that they are well documented, clearly communicated, and easy to follow. The less accessible or understandable a reward system becomes, the less it works. Second, be consistent in its application. Whether the outcome is the same or different, people like to know that there is a process being followed and that it is the same for everybody. The more arbitrary you are and the more exceptions you make for particular people, the less bang you get for your buck or value for your effort. Finally, and probably most important, allow voice. Any reward, large or small, is likely to be accepted as being fair if you give others the opportunity to state their perspective. By denying people even marginal input, they are less likely to buy what you are selling. Often you do not even have to agree with their opinions, but you do have to listen authentically; people desp erately want to be heard. The other mechanism for improving or reducing the power of rewards is whether you emphasize their controlling aspects. We do want to control or at least influence behavior with rewards. Otherwise, why else would you use them? However, many people have substantive needs for autonomy. While the need for autonomy can range from nonexistent all the way up to Patrick Henry’s â€Å"Give me liberty or give me death,† on average it is quite large. Typically we do not like other people telling us what to do, we do not like feeling controlled, and we resent any efforts to coerce. To reestablish a sense of autonomy, we might reject significant rewards, seemingly self-destructively— cutting off your nose to spite your face. Consequently, giving people a degree of choice in reward systems and framing the system as encouragement rather than control reduces the perceived threat to autonomy. For example, Washington, D.C., has a performance system for teachers called â€Å"Impact Plus.† Teachers can voluntarily enroll, potentially doubling their salary, if they are willing to give up some job security provision in their union contract. When his friends do show up, Tom applies himself to the paintbrush with gusto, presenting the tedious chore as a rare opportunity. Tom’s friends wind up not only paying for the privilege of taking their turn at the fence, but deriving real pleasure from the task—a win–win outcome if there ever was one. In Twain’s words, Tom â€Å"had discovered a great law of human action, without knowing it—namely, that in order to make a man or a boy covet a thing, it is only necessary to make the thing difï ¬ cult to attain.† (p. 1) REWARDS TELL US HOW REWARDING THE TASK REALLY IS Ariely, Loewenstein, and Prelec (2006) suggest what they call the â€Å"Tom Sawyer effect.† They write, In a famous passage of Mark Twain’s novel Tom Sawyer, Tom is faced with the unenviable job of whitewashing his aunt’s fence in full view of his friends who will pass by shortly and whose snickering Perhaps even more notable, this effect demonstrates that the value of a task, real and perceived, is malleable and that rewards can be used quite persuasively to alter this perception. Certainly price in many cases communicates meaning. For example, if a colleague offers you $1,500 to go on a date with her brother, you have just been given a lot of information about that brother, as well as about how the date might be expected to go. Similarly, Plassmann, O’Doherty, Shiv, and Rangel (2008) examined the effects of pricing on the experience of enjoyment of wine. As might be expected, as the price of the wine increased, participants reported a greater level of satisfaction with the wine overall. That is, their attitudes about the wine and self-reported experience were more positive. Impressively, they also showed a greater physiological satisfaction with the wine. On functional magnetic resonance imaging (fMRI) scans of participants’ brains, a higher level of activity was observed in one of the pleasure centers of the brain. Not only did price provide information that informed attitudes, but it also informed real, physical reactions. Of note, when the same participants assessed the wine in blind taste tests, they gave the cheapest wine (five dollars a bottle) the highest praise. Consequently, if we pay people to perform a task, we also can be communicating that the task is awful. They will hate it simply because that is what the â€Å"price† indicates, countering what natural positive feelings we might have had. For example, economists tried to incent students’ performance by paying them to learn—a cash-for-grades scheme. â€Å"Remarkably,† as Fryer (2010) found, â€Å"incentives for output did not increase achievement† (p. 5). Actually it’s not so remarkable. Good framing can minimize this, where we ensure we are also communicating that this is a desirable job. You could make it clear, as Tom Sawyer did, that the task is coveted and others would be eager to do the same. There are scores of public schools that are incredibly demanding in what they ask of their students, such as SEED schools and the Harlem Success Academy. Perhaps they can ask so much because the competition to get in is so high that it is done by lottery.