On Incentives.
The dictionary definition is:
A thing that motivates or encourages one to do something.
I think that’s clear enough to understand. Why do we need incentives? Because they get results.
Incentives are everywhere in the business world. And they come in all shapes and sizes. Salespeople are typically given commissions as an incentive to sell more products. Employers often offer bonuses to employees who accomplish specific goals.
Incentives work because they tap into our natural desires. We all want to be rewarded for our efforts. And when we know that there’s a possibility of getting a reward, we’re more likely to put in the extra effort to achieve it.
But incentives can also backfire. If they’re not used correctly, they can create negative consequences and create an overall feeling of mistrust.
For example, if employees are given a sales quota that’s unrealistic, they may resort to shady practices in order to meet it. Or if a bonus is given for meeting a goal that’s impossible to achieve, people may start cutting corners or gaming the system.
Incentives need to be carefully designed and implemented in order to be effective. They should be based on realistic goals and they should be fair.
When used correctly, incentives can be a powerful tool for motivating people and getting results. But when used improperly, they can do more harm than good.
Working Backwards From The Results You Want.
The best way to understand what type of incentives you need to give other people it’s best to work backward from the behavior you are looking to encourage, the results you wish them to generate, and also what they care about. After all, for an incentive to work as a motivator, it needs to be something that people desire.
This is slight upside-down thinking from the normal incentive scheme, and quite rightly so, as we will see that many good-natured incentive schemes fall flat on their faces because they have unintended consequences.
This is especially true of social policies, where there are great sounding goals, but the economic incentive that they generally create significant side effects.
In the business world, a good example is finding the right mix of pay and equity for startup employees. The level of pay needs to be high enough to attract top talent, but if it’s too high, then there is less room to give out stock options, which are an important part of most tech company compensation packages.
The goal is to have a mix that attracts the best talent and aligns their interests with the long-term success of the company. This can be a difficult balance to find, but it’s important to get it right because the incentives you set will determine the type of behavior you get from your employees.
The Simplest Incentive: Recognition
The easiest (and cheapest!) way to incentivize someone to do a great job is simply to recognize that they have done a great job after the fact, with a genuine smile and a short conversation. While this is simple, you would be amazed at how many organizations and situations this is simply missed out on, and in fact, the opposite is done, and that other person will claim the credit for the good job, which is a huge demotivating factor.
The easiest way to combat this is to have a set policy in place that whenever something good happens, the team member who made it happen is recognized in front of their peers, with a short explanation of what they did and why it was great. This not only makes the person feel appreciated but also sends a message to the rest of the team that this behavior is valued and will be rewarded.
This doesn’t have to be a formal process, and in fact, the best recognition is often impromptu and sincere. But it’s important to make sure that it happens regularly, or else people will quickly lose motivation.
While monetary incentives are often the first thing that comes to mind when thinking about incentives, they are not the only type of incentive that you can give. In fact, non-monetary incentives can often be more effective because they show that you care about more than just the bottom line.
Some examples of non-monetary incentives include:
• Recognition – as we already discussed, recognition is a powerful motivator and it doesn’t have to cost anything to do. Simply taking the time to say “thank you” or “good job” can make a big difference in someone’s motivation.
• Training and development –Investing in your employees’ development shows that you are committed to their growth and that you believe in their ability to improve and contribute to the company. This can be anything from sending them to conferences or workshops to providing on-the-job training that will help them develop new skills.
• Flexible working arrangements –Giving employees some flexibility in their working hours or location can be a big incentive, especially for those with families or other commitments outside of work. This can be anything from allowing them to work from home one day a week to having flexible start and finish times.
• Employee benefits – Offering additional employee benefits such as health insurance, free or discounted gym memberships, or childcare can also be a big incentive for many people. These benefits show that you care about your employees’ well-being and that you are willing to invest in their health and happiness.
Of course, there are many other types of incentives that you can give, and the best ones will be those that are tailored to your company and your employees. The important thing is to think about what motivates your team and what would make them feel appreciated.
Trust & Independence
Positive And Negative Incentives
Not doing something, means doing something. Inaction is the action of non-action.
Prison as an incentive not to commit crimes. It both works and doesn’t. Most criminals don’t begin to commit a crime thinking that they will be caught, but on the other hand, many people wouldn’t even consider crime as a career option because there is the threat of prison.
It’s the same with work. If you create an environment where people feel trusted and are given the independence to do their job, they will be much more motivated to do a good job than if they feel like they are being micromanaged or that their every move is being watched.
Of course, this doesn’t mean that you should just leave your employees to their own devices and hope for the best. There needs to be a balance between trust and supervision, and it will vary from team to team. But as a general rule, the more trust you can give, the better.
Unintended Side Effects
With all the positive benefits of incentives, we still have to be really careful about how we go about giving them because they can have catastrophic unintended consequences.
Let me give you a simple example.
Let’s imagine that you are the Chief of Police in a major city. You decide to reward each individual police precinct based on the number of arrests they make. They will have larger budgets for new equipment, higher pay, and multiple extra non-financial bonuses.
On the surface, this sounds like a great idea. After all, the officers working there are going to be really motivated to go after criminals and bring them in, which is exactly what the city needs.
However, as soon as we dig a little deeper, we realize that there are some troubling oversimplifications with this incentives model that will ultimately cause it to fail.
The only metric used to judge whether the precinct should receive the bonuses is the number of arrests. This is a very arbitrary value and doesn’t actually fit with the complex way that modern policing works.
For example, let’s say that the city has two precincts. One is in a affluent neighbourhood with very little crime, and the other is in a high-crime area. The precinct in the affluent neighbourhood is going to have a much easier time making arrests than the other one, even though they are both doing an equal amount of work.
This means that the wealthier precinct is going to get more money, while the poorer precinct will get less, even though they are the ones who need it more.
In addition, this incentive model doesn’t take into account what happens after an arrest is made. Let’s say that an officer makes an arrest for a minor offense, but the person they arrest has their life ruined because they can’t get a job or housing because of the arrest.
The officer in this case would be rewarded for their “good work,” even though they have caused more harm than good.
These are just a few examples of how this type of incentive system can go wrong, and there are many more. The point is that when you are designing an incentive system, you need to be very careful about what values you are trying to promote and how you are going to measure success.
Even with all of these caveats, incentives can still be a powerful motivator, but we need to use them wisely.
Before we go any further, let’s continue the thought experiment and launch this bonus scheme, and see what happens.
It’s Monday morning, and all the officers receive a memo with the multiple targets levels for the number of different arrests, and the compensation and bonuses they will receive for each level.
The first shift leaves on Monday mid-morning, and by Tuesday afternoon, every single person in their catchment area who has committed even the slightest offense, which may include things like jaywalking, swearing, or riding a bicycle without a helmet, has been arrested. Of course, true criminals such as the type of people who hang out on street corners selling drugs will also have been apprehended, but they will be in the minority.
So what has happened? Well, it’s a simple case of incentives being used in a shallow, ill-conceived way. The officers needed arrests, and arrests they created. However, in the process, they also created a whole lot of work for the courts, and they likely ruined a few lives along the way.
This is not an effective way to use incentives.
Incentives need to be designed carefully if we want to avoid these types of negative consequences. We need to think about what values we are trying to promote and how we can best measure success. Only then can we create an incentive system that will actually work.
This completely ignores that high-profile arrests can take weeks or months to make and that arresting a generally law-abiding citizen for jaywalking will only cause resentment toward the police force instead of actually improving the community.
It also ignores the fact that there will be some awesome officers out there who can break up fights, arguments, and general civil disorder in an intelligent manner, which doesn’t require arresting any of the parties involved.
Even with these issues, there could be a place for financial incentives in policing, but they would need to be thoughtfully designed We need to think about what we want to promote and how best to measure it before we can create an effective incentive system.
However, these police officers are not incentivized to continue doing this great police work because it’s not something that can be noted on a spreadsheet and tallied up at the end of the month.
So, we need to think carefully both about the goals we set and the incentives that we create to hit those goals, otherwise we’ll discover that things won’t go quite as we planned!
