Commentary on a Harvard Business School Case Study about Extrinsic Motivators: specifically monetary compensation.

People sometimes do exactly what they’re paid to do, oftentimes to the detriment of company goals, such as the top line, getting new customers and retaining existing customers, as evidenced by the example of a car salesperson turning away a potential future sale simply because they are not ready to buy “today”. The salesperson saw their energy better directed to immediate and more achievable, short-term sales that would directly affect their commission, rather than fostering client relations.

In the case, the City of Albuquerque, in an attempt to incentivize their garbage collectors to be more efficient, instituted a policy of paying their garbage truck drivers for an eight-hour day regardless of whether they finished in more or less than eight hours. The City believed this would encourage their drivers to work more efficiently and finish quicker. In reality, it caused a lot of undesired and unintended consequences such as missed garbage pickups (City had to send trucks back out on second trips to pick up) and speeding tickets and increased vehicle accident rates. The City’s solution to its garbage collection cost problem ended up being more expensive than the original problem!

Lessons:

• Financial incentives can actually lead to undesirable behaviors. Companies who set themselves up with extrinsic motivation systems (e.g. pay) often experience failure in retaining talent, getting performance and avoiding ethical failures such as the ends justifying the means and the means can include “bad” behaviors.
• Companies need to shift their beliefs that financial incentives (external motivators) will be a better expenditure of energy than doing the more involved work of identifying and removing roadblocks to performance that exist in the architecture of the company’s systems.
• Financial and non-financial incentives need to be given as rewards for good work, not to entice good work or performance. This is easier said than done and the road to implementation of an effective pay-for-performance system of extrinsic motivators is laden with potential landmines.

Compensation-based “quick-fixes” (and other externally-based motivators) for various performance problems are certainly very prevalent today. However, other, intrinsic, motivators have been found to be more powerful. Take look at Dan Pinks’ book “Drive: The Surprising Truth About What Motivates Us“.