“We are not as endlessly manipulable and predictable as you would think,” says Dan Pink in Drive.
The results of an MIT study demonstrated that while there is a correspondence between effort expended and inventive expected for mechanical skills. However, when the task involved even a modicum of cognitive skills, a larger reward led to poorer performance.
Studies at MIT, the University of Chicago, and Carnegie Mellon all found similar results. Higher pay equals better performance for rote work, but does not work the same way when even rudimentary cognitive skills are involved.
In fact, based on experiments that psychologists, sociologists, and economists have replicated over and over again, the highest rewards corresponded to the poorest performance. When the task is simple and straight forward, monetary rewards work, when it is complicated and requires conceptual, creative thinking, they don't.
Based on this body of research, Pink found that money is a motivator with a slight twist ― the best use of monetary incentive for work is to pay people enough and take the money issue off the table.
This is not a minor detail, and worth additional thought.
In the same way we deem it difficult to calculate the cost or value of making trade-offs when it comes to knowledge work, many organizations may have a mismatch between the management skills they need at their current stage of growth and what they have.
Some people who can drive a business, for example, are weaker when it comes to evaluating candidates. Which leads to the most cost effective or less objectionable choice, someone who has done that thing twenty times in the same kind of company, being the default. On paper and on the surface is different than in real life, however.
For example, optimizing is a very different skill set to innovating, testing is not the same as experimenting, validating is not the same as iterating, and so on. A person who understands which questions to ask and when is not the same as a person who just asks a lot of questions.
The right kind of experience makes a difference, but so does looking at a body of work over time ― the secret sauce of how an individual has assimilated experience from different industries and fields. Especially when rote work is easier to automate, we would want to hire a whole person rather than a spare part.
This is worth thinking about because it has an impact on energy and getting the right things done.
In Pebbles of Perception Laurence Endersen says that a few good choices make all the difference. Incentives drive behavior, which is why they matter. We just need to understand what we mean when we talk about incentives. He says:
We can only understand a situation with true clarity when we take the time to carefully consider the interests at hand. Ans we understand it even better when we consider how the situation might be different if the underlying interests were different.
We don't have a hard time, for example, calculating what incentives are behind an ad. But, we may have a harder time seeing the distorting power of incentives in other situations when they “overly focus our behavior.” We are all familiar with the hammer and the nail analogy. Make an incentive too narrow and we lose sight of the unintended consequences.
Studies of loan officer approvals during the recent US mortgage crisis showed that the loan officers actually believed the cases with the highest commission were more creditworthy. The effect was worse than naked self-interest: the incentive actually blinded their judgement.
Understanding incentives is liked to second-level thinking. Many an incentive that was designed with a primary purpose in mind has backfired because the designers have failed to consider what other interests may be affected, or how self-interest would manifest itself in a way that was contrary to what expected.
Going back to the example of hiring the right person for the job, sometimes we fail to consider how incremental experience as in ability to solve problems in different ways vs. solving the same kind of problem in the same kind of way (and corresponding monetary value) affects exponential vs. incremental results.
Another way of looking at it is calculating the cost to the organization of someone who relies on prescriptive direction vs. a proactive problem solver. The issue is compounded if other factors like fear of making mistakes based on mindset ― the incentive given just for showing up ― and type of environment or culture ― we turn a blind eye to lack of initiative.
We get what we pay for, and we also don't get what we don't pay for
But incentives are not just monetary.
In the same way that recognition and demonstrating gratitude go a long way in creating engagement, so does the type of opportunity we can offer. How we design job specifications should take into account the type of person we want to attract.
If we think our organization is unique and believe it has a differentiated value proposition, we then might want to reconsider averaging the job description based on Google searches for like-type jobs and act accordingly. Some examples of thinking:
- What does our culture value?
- Where are we on the business curve?
- How's our competition/growth/life stage?
- How much more optimizing is there left?
Better thinking and definition up front can save a company not just grief but serious money. There is no limit for better. But there is a race at the bottom.
Focusing on the behavior we want
We can and should pay attention to how we use incentives, because we may “incentivize behavior we do not want,” says Endersen.
Bureaucratic rules can develop in organizations to save people from making thoughtful decisions. So we end up with nonsense like: “You are correct, and I would love to help you, but our long-standing procedures don't allow it.”
What's more, if we build companies that have a culture of profit at all costs, we are doing our employees a grave injustice. Cartels, bribes and environmental damage all result from poor incentives.
Considerable thought needs to be given to incentive design. Understanding the range and nature of interests involved is key. We should seek to design incentives to bring out the best in people and pay attention to actual behavior as a warning alert for possible design flaws.
If, for example, the incentive is to put a body into a position than the right body, we know we have a spare parts approach to work. In an economy where excellence has increasingly become contextual.
Once the money issue is addressed, there are three factors that lead to better performance, says Dan Pink:
1.) Autonomy - or the desire to direct our own lives
2.) Mastery - the urge to get better and better at something that matters
3.) Purpose - the yearning to do what we do in the service of something larger than ourselves
Self-direction, learning to master something meaningful, and aspiring to something greater are the foundation of higher engagement at work. We create more when we get better at it, and we do so by feeling productive, having interesting and meaningful work that comes with clear and reasonable expectations and frequent and usable feedback.
When our work environment is consistent and fair, we have a sense that we have maximum control over our day and that we are part of a community we become more creative ― because we don't expend energy trying to make sense of what is going on, or worse chasing the wrong incentives.
It's a give and take ― we create the environment where the kind of person who is self-directed, has the urge to get better at things, and can find a strong sense of purpose thrives and we get the benefits of an organization filled with curiosity, desire to get better and grow and direction.
The profit motive is a double-edged sword ― when it is the only thing an organization cares about, it sends that message in all its behaviors. And it attracts the unintended consequences.
Watch the full video animation of Dan Pink's talk below.