“I’m surrounded by a bunch of fools here”

“I don’t think the management even knows what they’re doing”

It’s not surprising to hear these statements at a local bar after a hard week. You think that if you were the boss, you would do things so much differently. 

Perhaps there are folks at another bar feeling the same way about some of your actions. 

Human behavior is driven by a desire for incentives and reinforcement. While we see the behaviors on display, we often miss the incentives driving them. 

Money, status, job security and recognition at work shape the way people behave. From a young age, we are conditioned to create associations between an action and its consequence. 

Good grades motivate you to study hard. When people laugh at your jokes and you gain popularity, you are likely to make more of them in the future.

Those who bend their behavior to adhere to cultural norms are showered with social acclaim that leads to more acceptance.   

The workplace is no different. 

Receiving accolades for certain behaviors causes us to repeat them. Positive reinforcement is powerful and addictive. 

Similarly, the removal of unpleasant stimuli can also drive behavior. Avoiding an angry boss or being berated in front of your co-workers can cause people to steer clear of certain actions. 

Responding to rewards and punishment is so ingrained that it is often subconscious and can cut across morality and reasoning. 

Unfortunately, while we are great at responding to incentives, we are not-so-good at designing them. 

It is often because of this that you might curse the workplace, society or government for its malfunction.

For instance, you come up with ways to eliminate large amounts of wastage in your department and come in well below your budget. Along with, or in place of a medal, raise or applause, you are highly likely to have your budget trimmed by a large chunk the following year. 

Imagine offering kids candy to clean up their room. They are highly likely to come with ways to create another mess for more candy in the future. 

Perverse incentives are everywhere. 

While they seem well-intentioned on the surface, they end up with undesirable consequences, much against what you set out to achieve. 

Year-end bonuses for Wall Street executives and bankers have led them to burying billions of dollars of risk to receive handsome rewards. Medical programs that reimburse diagnostic costs end up encouraging more tests and less prevention. 

The remedy? 

Take a hard look and ask the ‘how’ and the ‘why’. If something is too good to be true, it mostly is. If the culture seems cut throat and desperate, it probably shouldn’t be. 

The extremes are dangerous and dangling outcome-based incentives in front of people might result in behaviors going out of hand. The actions accumulate overtime and become misaligned with the outcomes you desire. 

Where do morality and values fit into the picture? At the end of day, we incentivise humans and not some impersonal entity.

Research has shown that incentives do not generate a lasting devotion to any values. They merely and temporarily change our actions. 

Humans are extremely good at rationalizing actions in light of short-term outcomes. We come up with creative justifications for bad behavior and often combat it with more controls and oversight. 

This only lasts for so long. 

When you set out to architect incentives, first get the behaviors right. These could turn out contextual and subjective, but in line with objectives. 

For example, if the business goal is to run a lean operation, removing non-value adding activities, onboarding low cost suppliers or negotiating contracts could be desirable behaviors. 

By accumulating over time, these will lead to great outcomes.

Collect information about people from different sources and applaud and praise what they did and ‘how’ they achieved outcomes. This is less likely to end up in collisions and misalignment.  

While financial impact and quantitative metrics are easier to incentivise, expanding the scope to customer impact, organizational health or quality of talent can help to make improvements more holistic. 

As a leader, it is also important to ask if the incentive structure aligns with the culture, geography and history of the organization. 

Incentivising speed in a legacy firm that has multiple dependencies without regard to the available tools and infra might either lead to shortcuts or demotivation.  

Incentives can go a long way in unlocking potential, building ingenuity and thus improving performance. However, the direction and context  is crucial.

Incentives can be used to generate the right behavior. For example, between siblings trying to share a cupcake,  the one dividing the cupcake should not be the one distributing the two halves.

So the next time you sit down after a long week, think of what caused the people to be fools. 

You might figure that you reap what you reward.