Rethinking Rewards

Today many companies depend on their reward systems to help them implement strategy. From the multimillions awarded to some senior managers in stock options to vacations at resorts for winning salespeople, rewards and incentives are a dominant part of organizational life. Rewards and incentives play an equally important role in the broader society. Teachers use gold stars and demerits for school children. Religious organizations reward perfect attendance and contributions. Political parties, have complex systems of rewards and incentives.

Imagine what your classes would be like if there were no rewards and punishments. What would motivate students to learn? Would classes be better or worse? More fun or less? What would take the place of rewards and punishments such as grades?

The basic idea is that people engage in behavior because it will lead to rewards. And as the concept of strategy implementation has evolved, many have argued that it is necessary to tie the achievement and implementation of strategic goals and plans to a specific system of rewards. To implement some long range strategic plans managers receive rewards years after the implementation actually took place. A more thorough study of motivation awaits us. At least one management writer has questioned the very idea of rewards and incentives.

The Trouble with Gold Stars, Incentive Plans, A’s Praise, and other Bribes, has argued that any approach that offers a reward for better performance is destined to be ineffective. Four reasons why rewards are a bad idea. First of all, rewards are a form of punishment. When you do not get a reward it is like being punished, and when you do get one, you can easily come to resent the control that it represents. The person the reward exerts power and control over you be giving you the reward. Where there is a carrot, there is also a stick, a punishment. One management theorists, Harry Levinson, says that the only thing people can imagine between a carrot and a stick is a jackass or a donkey. Using rewards and punishment is therefore treating people as equivalent to donkeys on this view.

Second, rewards can destroy relationships. Real cooperation and sharing is necessary for quality products and services. If someone is judging you in order to reward or punish you, your actions will be to seek approval or avoid disapproval, rather than to do the tasks that are necessary.

Third, rewards focus on outcomes and can ignore reasons. By rewarding the outcomes we can easily ignore the causes and the bigger system that produces the outcomes. Kohn offers a good example of a worker whose performance has deteriorated and so gets no rewards. But such a program ignores the cause of the decline in performance. He says, Turning the workplace into a game show (Tell our employees about the fabulous prizes we have for them if their productivity improves) does exactly nothing to solve these underlying problems and bring about meaningful change.

Finally, rewards can discourage risk taking. By focusing on the rewards, managers can ignore changes in strategy that need to be made as a matter of mid course correction, and they will not make decisions that may have higher payoffs but have more risk. If you have been promised a reward, you come to see then ask as something that stands between you and it. The easier that job is, the faster it can be done with it and pick up your prize.

If Kohn’s analysis given above has some validity, managers in the future will have to take a new approach to strategy implementation. They will have to design organizations and work to fit the needs and aspirations of the people doing the work. They will have to formulate strategies that clearly set froth a vision of life that employees want to realize. At least part of what we have called dynamic engagement depends heavily on understanding organizations and work in terms of values that motivate employees and other stakeholders rather than focusing on behavioral rewards.

We cannot agree incentive is a negative factor and inhibits productivity. On the contrary it is the opposite.