Incentives in a Creative Economy
By Brand Zietsman – Agile Consultant, IQ Business
The “Scientific Management” method was introduced by Fredrick W Taylor in 1911. In part, it focuses on the role of management. Management is responsible for determining the best method to complete each task through time and motion study, training the worker in this method, and keeping individual records for incentive-based pay. Taylor popularised formal incentive-based performance management to “motivate” the worker.
Around the same time, John B Watson established a new philosophy of psychology called Behaviourism; A branch of psychology that aims to predict and control human behaviour. Behaviourism treats behaviour as the sum of the events that are experienced by the animal, thereby it “recognises no dividing line between man and brute.” In this approach, the “self” has no influence. BF Skinner continued psychological research using this philosophy into the ‘90s. Reward programs in education and business are still based on this work.
Taylor’s method and behaviourism make a perfect match; the one disregards the craftsman, and the other the “self”; pride in a craft should, therefore, play no role in motivation. Taylorism created a status differentiation between managers and workers, further reinforced by the manager’s responsibility to design and issue rewards.
Imagine, for a second, that you see your neighbour struggling to fix a flat tyre and you decide to help him. He then offers you R20 for your help. How would that make you feel? I am not sure that Skinner’s rats and pigeons felt that way. Humans reason about the meaning behind an incentive, and it greatly affects our sense of autonomy.
“Do this, then get that” incentives narrow our focus. If you do X, then I will give you Y, specifically places the focus on Y. It reduces the likelihood that we will take a novel approach to a problem. Eyes on the prize, we will steer away from taking risks, and we will stick to the safe route to ensure that we achieve the goal. “Do this, then get that” extrinsic incentives ignore the value of intrinsic motivation. In my experience, such incentives reduce the likelihood that a task would be intrinsically rewarding as a result.
In an organisation I worked at, the CEO launched an innovation reward; a significant monetary incentive, for the best new business idea. Some teams invested a great deal of effort to win the prize, but none of them was judged to be worthy of the award. The development team did not submit an idea to the competition. They did a quarterly Hackathon using company time and resources for 24 hours to work on their ideas. The only rule was that they had to showcase the idea at the end in an open session that could be attended by any interested party. A couple of team members combined some ideas they had generated and implemented a solution that resulted in a 50% saving in effort by one of the organisations call centres during peak demand time. Their only expected reward was to have fun figuring out how to solve a collection of problems that they were interested in; intrinsic reward. They received way more than they expected! They were awarded the innovation prize.
Traditional incentives are structured to maintain the status quo, and using them to encourage innovation is a contradiction. As humans, we battle to be innovative under the constraints imposed by them.
Research shows that monetary incentive systems create a reinforcing loop. We reward the employee with a financial incentive for good performance; this inhibits intrinsic reward; work starts to “suck” a little, and the primary driver becomes attaining even more extrinsic reward; work starts to “suck” a little bit more, and the dependency on extrinsic reward grows continuously. It can be argued that monetary incentive align with improved performance, and that is right, but only in the short term. I have observed unusual behaviour in many organisations around financial year-end when most would assess performance for the past year to dish out bonuses. Once the bonus is spent, people’s behaviour returns to whatever was normal.
Why then do we keep on using these traditional extrinsic reward systems? Psychologist Mihaly Csikszentmihalyi, says, “To de-emphasise traditional rewards threatens the existing power structure”. Another author states, “The master’s tools will never dismantle the master’s house”. I hope we do not need to be that cynical; could this situation exist due to a lack of awareness about alternatives and accompanying proof that alternatives are effective?
I have run an experiment with the removal of extrinsic motivation. Our organisation used a traditional KPI (Key Performance Indicator) performance management system. As part of adopting a self-organising team structure, the KPAs (Key Performance Areas) were aligned to be Dev Team Membership, Business Domain Knowledge Development, Technical Skills Development, and Personal Accountability. Dev Team Membership carried a 50% weighting because it is the direct service that the Software Development Department provided to the business. The combined weighting of the other areas made up the remaining 50%.
The approach was implemented like most KPI systems, wherein the employee scores themselves and provides evidence to support their score. The manager then discusses the score with the employee and adjusts it up or down based on their assessment of the employee. I was the manager, and from my perspective, I was completely objective, or at least I tried to be. The team grew, and it became tough to have an objective opinion of each team member’s performance.
I decided to give 360-degree reviews a try but thought that team members would be hesitant to provide honest feedback if they knew that it would affect a colleague’s pocket. The formal performance management system expected an assessment of employee performance twice per year. In our team, we aimed to have a conversation about these measures on a quarterly basis. I decide to remove the incentive from the equation by running a 360 review during one of the quarterly cycles, not governed by the larger organisation. I agreed with the team that I would personally destroy records of the review if the organisation expected this review to be used as input to the annual incentive scheme. Team members each nominated four other team members whose feedback they would value. I received a bit of criticism for allowing team members to select their reviewers, but it was part of the experiment. I did not believe that they would only choose people that held them in positive regard. I reasoned that if this happens, I will make it part of the review conversation. It is relatively easy to remain aware of the state of relationships in a team of thirty, and therefore easy to highlight.
The results were truly astonishing. I did not need to have the conversation about people only asking input from their buddies. Team members valued the feedback from each other; there was no harm in being honest. I tried to anonymise comments, but that was not very successful, the writing style of each team member is like a signature. It turns out it was not necessary to anonymise feedback; there was no conflict as a result of the comments. This specific round of feedback resulted in a significant improvement in most team members’ development, with absolutely no incentive linked to it.
The team functioned in a very confrontational environment, not always in the positive sense, however, within the team an environment of trust was developed, starting from recruitment. The experiment is not recommended for just any environment.
How do we leverage intrinsic reward, align organisational objectives, and make the process sustainable? Andy Grove originally developed Objectives and Key Results (OKRs) at Intel, and these were later introduced to Google by John Doerr.
Here is my OKR for this post:
To demonstrate that traditional incentive systems are outdated and to create awareness of alternative methods.
1. Highlight the origin of traditional incentive systems from a management and psychological perspective. Measure this through feedback from colleagues and friends.
2. Explain the dehumanising impact of rewards. Assess this by gaining feedback from colleagues and friends.
3. Provide an example of intrinsic reward from personal experience.
4. Explain the catch-22 that organisations face regarding traditional incentive systems. Measure this through feedback from colleagues and friends.
5. Explain how OKRs work, and measure this using feedback from colleagues and friends.
6. Less than a seven-minute read, as measured by blog reading time estimation tools.
7. Provide at least two further references that contributed to my thinking.
Looking at my OKR, you will see that the “Objective” is a little vague and qualitative, it is the “what” and the “key results” are the “how” (quantitative). Part of the value of OKRs is that they encourage dialogue about the objectives. At an organisational level, departments are encouraged to identify how they will contribute to the organisation’s OKRs. Departmental-level teams are encouraged to identify how they will contribute to the department’s OKRs. At a team level, individuals are encouraged to identify how they will contribute to achieving the team’s goals. The fact that OKRs are negotiated all the way to individual level creates ownership of objectives by individuals.
If I find it hard to align my OKRs to that of my team, it is probably an indication that I need to look for opportunities in other areas of the business or possibly a different organisation. That said, not all OKRs have to be organisation-focused at an individual level. I might have two OKRs that contribute to those of my team, and others that focus on my development or a new product idea that I wish to prototype.
Key results are meant to be measurable and typically include a “measured by” or “demonstrated by” phrase and timeline. OKRs should challenge you; by not being easy to achieve it adds to one of the key elements contributing to intrinsic motivation. At Google, an acceptable score on your OKRs is a 70% average. This is not to say that all objectives are met to a 70% satisfaction level; it might mean 100% satisfaction on some and less than 70% on others.
Review is done on OKRs on a regular basis, typically quarterly. The shorter cycles allow for continued dialogue on progress, support, reprioritisation, and alignment. The review interval is determined by the organisation to support alignment, and the owner of the OKR is responsible for collecting measurement information and finalising the review. During review, OKRs can be introduced or removed to align with changes in direction by the organisation (at the various levels including department, team, and individual). Changes in OKRs could also be based on what was learnt in the previous cycle; a pivot or persevere approach.
All OKRs are made visible across the organisation; it encourages transparency in and support from the broader organisation. In Google, even the founders’ OKRs are available to view by anyone.
How are individual incentives calculated based on OKRs? OKRs do not contribute to incentives, they utilise intrinsic motivation and should therefore not be combined with extrinsic motivation. They leverage actual motivational factors: Autonomy, Mastery and Purpose (or relatedness).
I know that you might argue “We are not Google, it will never work here”. However, it is a framework and thus remains adaptable. Maybe it is too difficult to adopt at an organisational level; then try running experiments at a team or departmental level to prove or disprove its potential value and impact. It is simply too important to ignore; a focus on intrinsic motivation beats any alternative.
Google Ventures shared with this with their partners about OKRs.
Does that mean that a little extra money in the form of a bonus is gone forever? Everybody appreciates a little extra cash occasionally, but money should not be used as a motivator. Here are a couple of ideas from Management 3.0 on how to manage this aspect.
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