All Incentives Are Not Created Equal

The primary reason that people work is to buy stuff for their families: food, shelter, healthcare, schooling, etc. If people can get some of that stuff without working, we don’t expect as many people to work.
University of Chicago economist Casey B. Mulligan

incentive blogThere has been a great deal of discussion recently about the impact of the Affordable Care Act on U.S. workers. Statistics from the Congressional Budget Office indicate that as many as 2 million people may stop working because they can afford to get health insurance someplace other than their job. Many people have decried this as being a disincentive to work.

Our intention here is not to provoke a political debate, but rather to raise the question: Why do we want the people we employ, or manage, to work? What kinds of incentives are the best fit for our values and our culture?

Do we want to use immoral, and sometimes illegal, incentives such as torture, bribery, and blackmail? We’ll assume the answer is “No, ” even though we are aware that these practices may occur in situations as disparate as domestic politics, foreign industries, and piracy on the high seas. These kinds of incentives violate the values that nearly all of us hold as primary to living in a civilized culture. That’s why we’ve made their practice illegal.

Let us, for now, focus on the two most common types of incentives used in organizations today: punishment and reward. Not only are these types of incentives common, they also are very familiar. They are the kinds of incentives we may have experienced as we were growing up. Be a good boy and get a cookie. Be bad and you’re grounded. Be a good student and get an “A.” Be a poor student and go to summer school or be demoted to a lower track.

We confess to using some of these types of incentives on occasion with our own children and our pets. They certainly seemed, at the time, to be the quickest way to incent the desired behavior.

Here’s the rub. When we fear punishment, we focus on consequences, not on our own values. So we do what we need to do in order to avoid physical pain or the psychological pain of limited freedom, or loss of status. Is it any wonder that so many employees have victim stories if their incentive to work is the fear that they won’t be able to provide the most basic survival services for their family?

Using fear of punishment or loss of survival essentials as an incentive is not going to make any organization a long-term winner.

What about rewards? Studies have been researching this question for 30 years. It seems that incentive rewards can buy temporary compliance but do not change intrinsic motivation. Indeed, rewards can distract from results by focusing people on such issues as “how do I get this quarter’s bonus?” They can likewise discourage innovation and creativity.

In Take Charge of Your Talent, we lay out an effective approach to incentivizing employees that focuses not on punishment and reward but rather on encouraging intrinsic motivation: the desire for positive self-expression.

Since we assert that talent is self-expression, does it make sense to try and boost the use of talent with implied threats and rewards or by encouraging the clarification of hopes and pursuit of those hopes?

So, if 2 million people leave their jobs because fear was their only incentive, what’s to be done? What would happen if we focused on supporting them in using their talent to the fullest; to express themselves in ways that promote their values and contribute to a basic shift in why they work.

So we return to the primary question: Why do you want the people you employ, or manage, to work? Do you want them to work to avoid pain or work to pursue fulfillment? Do you want them to work to keep their jobs or to express themselves?

All incentives are not created equal.

Photo by:  Oleander

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