Markets and Incentives: The Good, the Bad, and the Ugly

Behavior is easily shaped through the use of markets and incentives.  The question throughout history has never been about if it is possible to motivate people.  It has always been about the how and  why.  Because, while behavior is easily affected, it is not so easy to direct that behavior in precisely the manner you wish.  Nearly daily, there are accounts of incentives gone wrong and plans gone surprisingly right.  Whether there were unintended results, out of whack expectations, or misdiagnosed priorities… trouble (and success) is lurking.

In an effort to create an ongoing chronicle of markets and incentives and there real-life place in this world, we’re going to pick a good, a bad, and a downright ugly episode to discuss. Hopefully we can make this a regular entry as there is no shortage of

The Good

There are plenty of occasions where incentives are setup for a purpose and meet expectations with flying colors.  However, the true “success” of an incentive program is often a matter of perspective.  Think of incentives as a tool or a weapon in much the same way we think of the atom bomb.  The bomb was a huge success in some history books… while a colossal disaster in others.  The ultimate outcome is almost never predictable when so much power is wielded.

*Obviously an incentive program will not do the damage or have the global effect of an atom bomb, I’m just being dramatic.

In this Business Week article (the second one), Higher Wages Lead to Less Corruption, the link between wages and corruption is highlighted.  Apparently the Prime Minister of Singapore makes about $2.4 million per year compared to about $400k for our American President.  The higher wages are appalling to many but they serve as a valuable deterrent to corruption.  It has been well documented that a gross imbalance between the power of a position and its pay lead ultimately to having that imbalance lessened through elicit and/or creative means.  Incidentally, Singapore ranks very highly on the least corrupted list.

The Bad

The Occupy Wall Street movement has really sunk their teeth into the “top 1%” of earners in America.  The Income Gap: Unfair, Or Are We Just Jealous? It’s a populist ploy that goes back to the beginning of human civilization.  Within our cocoons of daily business I doubt that many of us really consider the societal effects or our compensation plans.  However, it’s probably a good idea to monitor the caste systems being built within your organization.  If you have a sales rep making 100x more than a coworker, then be prepared to justify that in some way.  It’s a good strategy to tout the value of your top performers at all times without flaunting their rewards.  A bit of discretion and a dose of humility can go a long way.

The Ugly

I take this from Dilbert (if I remember correctly); a perfect, albeit extreme, example of an incentive program with some unexpected results.  Boss: The Company is proud to announce that we have successfully achieved our goal of having only 10 workplace accidents for the entire year… Unfortunately, we had to injure two people on December 31st in order to hit that goal.