Incentive plans have long been hailed as a solution to drive motivation and performance within organizations. However, a thought-provoking article published by the Harvard Business Review prompted me to take a closer look at these widely implemented plans. As I dive into the complexities of human motivation and the pitfalls of traditional incentives, I want to challenge the notion that incentive plans are a panacea for driving sustained success. In this post I aim to unravel the myth surrounding incentive plans and explore alternative perspectives that prioritize collective gains, psychological safety, and a deeper understanding of human behavior.
The Illusion of "One Size Fits All"
Human motivation is a complex and multifaceted phenomenon. Unfortunately, many incentive plans operate under the assumption that a single formula can effectively motivate every individual in the organization. This oversimplification fails to account for the diverse needs, values, and aspirations that drive human behavior.
Psychology: The Missing Piece of the Puzzle
The psychology behind human motivation is a crucial factor that is frequently overlooked in the design of incentive plans. Countless studies conducted by organizational psychologists and experts in the field have shown that traditional incentive systems often fail to consider intrinsic motivation and the deep-rooted desires that drive individuals. The HBR article cites experts stating convincingly that "rewards do not motivate; they punish" and that "they rupture relationships.” Here’s just a small sampling of what experts have found:
Edward Deci, Professor of Psychology, University of Rochester:
"Extrinsic rewards can undermine intrinsic motivation by making people feel controlled and manipulated. When people feel like they are only doing something for the reward, they are less likely to find the activity intrinsically interesting or enjoyable."
Lepper, Mark R., Professor of Psychology, Stanford University:
"When people are offered rewards for doing something they already enjoy, they tend to lose interest in the activity. This is because the reward changes the meaning of the activity from something that is done for its own sake to something that is done for the sake of the reward."
Pink, Daniel H., Author of Drive: The Surprising Truth About What Motivates Us:
"When we're extrinsically motivated, we're focused on the reward, not the task itself. This can lead to short-term gains, but it can also undermine our long-term motivation and performance."
Ryan, Richard M., Professor of Psychology, University of Rochester:
"Intrinsic motivation is the desire to do something for its own sake, out of interest or enjoyment. It's the kind of motivation that leads us to do things like read for pleasure, play sports, or spend time with friends. Extrinsic motivation, on the other hand, is the desire to do something for a reward or to avoid punishment. It's the kind of motivation that leads us to do things like work for money, study for grades, or obey the law."
In addition to the quotes above, the HBR article also discusses the following problems with traditional incentive systems:
They can lead to unethical behavior
They can create a focus on short-term results at the expense of long-term goals
They can create a competitive and divisive work environment
Beyond this article I wanted to share a couple of related examples I’ve come across. The first is from Fred Kofman, an executive coach and advisor on leadership and culture, who holds a PhD. in Economics from the University of California, Berkeley.
To shed light on the flaws of individualized incentives, executive coach Fred Kofman presents an intriguing analogy. He poses the question, "What's the goal of the defense in soccer?" If your answer is "to prevent goals" and an incentive plan is designed to reward this, it creates a system where the defense would be happier with a 0-1 loss than a 5-4 win. This example emphasizes the need for company-level thinking and aligning goals for collective success. This is absolutely worth the 3 minutes to watch, and I highly recommend his books
The second example that I think relates to this was the efforts of the Bill and Melinda Gates Foundation to improve educational outcomes through business-style teacher incentive plans.
The Bill Gates Foundation's Costly Lesson:
Even large-scale efforts, such as those undertaken by the Bill Gates Foundation, have encountered the limitations of incentive plans. Despite investing substantial resources to improve teaching and educational outcomes through "merit pay" systems, Gates himself concluded that none of it worked. The lesson learned was that addressing root causes and inequities within communities and societies is crucial for sustainable improvement.
Conclusion
Incentive plans have long been regarded as a go-to solution for motivating employees and driving performance. However, the evidence compiled over decades suggests a different reality. The one-size-fits-all approach often fails to account for the complexities of human motivation and the adverse effects of individual optimization. It is time for managers, especially executives and human resource leaders, to reassess their incentive systems and explore alternative approaches that emphasize collective gains.
To understand the intricacies of human motivation, we should turn to concepts like Maslow's hierarchy of needs and psychological safety. Maslow's theory reminds us that individuals have a range of needs beyond financial incentives, such as belonging, self-esteem, and self-actualization. Furthermore, fostering a psychologically safe work environment encourages calculated risk-taking and innovation without the fear of negative career consequences.
Creating a motivated and engaged workforce goes beyond financial rewards. It requires a deeper understanding of human psychology, fostering a supportive work environment, and addressing the fundamental needs and aspirations that drive individuals. So, let's rethink our approach to incentives and strive for a holistic, people-centered approach to unleashing true motivation and achieving long-term success. Motivation is not a one-size-fits-all concept. Let's delve deeper into the intricacies of human behavior and reimagine how we inspire and engage our teams. Together, we can create organizations that foster growth, collaboration, and true motivation
And while we’re doing it, why not make it a little fun along the way? After all, laughter can be the best incentive for a joyful workplace!
Sources/Further Reading
- Harvard Business Review article: "Why Incentive Plans Cannot Work"
- Fred Kofman biography - Conscious Business: How to Build Value through Values
- Washington Post article on the Bill Gates Foundation's teacher pay efforts
- "Intrinsic Motivation and Self-Determination in Human Behavior": APA article/review