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Incentives and Unintended Consequences

If you do not wish a man to do a thing, you had better get him to talk about it; for the more men talk, the more likely they are to do nothing else.

~Thomas Carlyle
Incentives can be a mighty force in any organization. When properly structured, incentives can cleanly and clearly align the goals of the individual with that of the organization. They also make managing staff productivity much easier as they can ensure each employee is doing their job without much oversight.
As beneficial as incentives can be, there are a number of issues that must be addressed. One is that monetary incentives do not work for every employee. Many—especially Millennials—are just are not motivated by dollars, so you will need to devise some other way of incentivizing this group. Trying to administer different incentives across a group of employees can be problematic.
You can try to ensure you are hiring folks who are monetarily motivated, but that is hard to do. All you can really do is devise an incentive system that appeals to the majority of your staff.
The second challenge with incentives is that they need to be paid more frequently the lower the level of the employee. Your CEO and top staff are used to getting incentives and bonuses paid once a year, but annual payouts are not sufficient if you are trying to reinforce behavior among your lower-level staff.
I suggest paying these incentives on a weekly, bi-weekly or monthly schedule. Once a quarter or longer is just too long to wait and can act as a disincentive to the majority of your labor force.
In addition to choosing the right schedule, you need to be certain your incentive is structured to reward the behavior you want. For example, a manufacturing firm I was working with paid a production bonus on the number of items completed, without regard to accuracy. This means that workers were incentivized to work fast, not accurately, so the error rate was very high. As a result, they were getting many complaints from customers about the quality of their products, not to mention the wasted materials and time.
In this case, the employees were operating within the constraints of the incentive, but the incentive was faulty in design. Once this firm developed an incentive that rewarded accuracy as well as production, errors dropped off along with customer complaints.
Another issue with incentives is that they can create a culture where employees are unwilling to do anything but tasks that yield an incentive. For example, I have seen cases when managers ask employees to clean their workstation and they refuse because doing so takes time away from incentive-earning tasks. The unintended consequence here is a workplace safety issue.
Now go out and make sure that your incentive system is generating the results you need without any unintended consequences. If you do not already have an incentive system in place, consider adding one to reward your employees for greater productivity.
You can do this!
Published: April 2, 2015

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Jerry Osteryoung

Jerry Osteryoung is a consultant to businesses—he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of the Jim Moran Institute and served in that position from 1995 through 2008. His latest book, coauthored with Tim O’Brien, “If You Have Employees, You Really Need This Book,” is a bestseller on Amazon. Email Jerry @ jerry.osteryoung@gmail.com

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