INCENTIVES

What drives you is the same as what motivates you? Provocative, yes, but that statement needs an answer in your own silence.

We have long been stretched across the mountainous range of incentives; the higher the peak the better the result is the dogma. But is that true?

Behavior Theorists will say yes. They as you know have confused the issues of Mice and Men. Pavlov’s old ghost that rewarded with a snack from the correctly recognized trap door vs an electric shock from the wrong one in mice works to do more harm than good in the short and the long run both in mice and men. Mice are synaptically hard-wired to reach a certain destination to receive a reward in forms of food and little else. In men watching the mice, it accentuates their resolve of incentives to potentially enhance productivity.

Incentives are both Intrinsic and Extrinsic. The former have a moral compass attached to them and the latter are more coercive in nature. Or let us just say the difference is between, “what I want to do, vs. what you want me to do.” The misguided mind wishes to enforce the extrinsic incentives to modulate the intrinsic ones and that, time, data and reason suggest is impossible – Edwin Locke (Ref # 1)

The misguided view of such thought is obvious. Pavlov’s conditioning is based on avoidance as much as it is in survival. The human kind mistakes that as increase in productivity causal through rewards. Our weaknesses are revealed under the uncompromising high altitude truths and there we find; rewards that feed desires quickly cause the hunger of understanding to flame out faster and with that exploration and innovation.

What good do incentives do then? Here are a few answers you will hear from the managers who have grown up with the “If this then that” concept of the American way of life.

1.       1. Productivity goes up! Does it? The answer in the short term is it does but then as more productivity is needed to keep the incentive, the quality goes south. The initial incentive creates a temporary phenomenon which fades quickly forcing the manager to go back for more and more of the manna. The classic fallacy that follows is; the initial hypothesis is correct and therefore more incentivizing is needed. The spiraling structure rides the next turn of the screw. Ultimately the train of thought has to reach a destination and it does when the cost per widget equals the profit from that widget and demand equals supply. To the manager who benefits from incentive programs because of his own bonus tied to it, it is always a “self-fulfilling prophecy,” when things go bad from good and he chimes his new incentive program as the panacea for success.

2.     2.   It motivates the producer. Does it? Temporarily, but it also creates a window of discontent from the others in the field who are without the incentives and feel inferior or “left out.” This particular cycle ends viciously in employee rivalry and competing for the finite pool of incentives thus leading to short cuts and loss of real productivity in the intermediate and long term. It is demoralizing to the ones who do not receive the incentives to continue with their daily workload with the same enthusiasm.

3.      3.  It benefits the manager. Yes that it does!

Mimi and Eunice

What bad do incentives do? Plenty!

1.       1. Incentives do not lead to an enduring commitment to any action or any program. Rewards have a similar effect on the human behavior as punishment and both in the end from the individual’s perspective feel like manipulation.

2.       2. Individual gain becomes the name of the game. Call it the Agency problem where the incentivized motivated manager cares only for the short term solution for a long term issue. Example a CEO/CFO who for the sake of a large bonus has to show a rising Stock Price to gain the appropriate stock shares as bonus reward for his actions. His actions might consist of reducing the labor force to reduce expense and thus increase the net income during a decrease in revenue, or he might consider increasing the debt (to offset income tax) and use the debt to buy-back the shares to enhance share value or he might sell a long term promising project for a short term windfall to shore up the assets and the share value through buy-back or report financial problems within the company in arcane hidden parts of the financial reports as “Special Purpose Entities” used by Arthur Anderson, the auditing firm in the classic case of Enron, where realized losses were hidden.

3.     3.   Incentives destroy exploration of causality in dwindling productivity and try to fix it with rewards.

4.      4.  Incentives are thieves of individual intrinsic motivation and desire.

5.      5.  Extrinsic Incentives reduce innovation. (Ref #s 2-5)

Nowhere is there a better example of such promotion of behavioral reward followed by punitive action more visible than in the field of medicine.  The CMS Authority has burdened the physicians with miniscule rewards and heavy penalties to attempt to change physician behavior. The long held Damocles Sword over the physicians called the SGR (Sustainable Growth Rate) formula to pay physicians that kept hinting at a 21% cut in reimbursements was repealed and instead a worse APM (Alternate Payment Model) was adopted that gives the CMS sweeping powers for draconian reduction in payments to physician from the 7 cents per dollar paid to them of the total healthcare costs. The 7 cents are under the most glaring of scrutiny than any in any kind of vocation. Meanwhile the healthcare managers with 5-6 times the average salary of physician, continue to reap the rewards from the Agency Problem by creating surreptitious models that point fingers of blame at the physicians for the escalating healthcare costs. Another example, for instance in this game of sham is the 0.5% reward for following a directive (“Meaningful Use” of EMRs) otherwise a 2% penalty. Likewise promoting ACOs to cut costs through “Less is More” policy saved the CMS over $400 million and rewarded the ACOs with less than 1/10^th in return. As the “Pioneer ACO” program fall out shows several of the ACOs disbanded due to belief that such dire cost cutting was leading to poor patient practices and hurting their chances of surviving financially in providing care to their communities.

More recently however the Insuring forces are incentivizing the use of poorly designed pseudo-scientific data to enforce limited screening of diseases like cancer.

Punitive actions are like their twin sister  incentives, neither present a long term viable behavioral modification. They actually lead to demoralization, as Robert W. Baird and Co., Inc., wrote in the 1985 book, Intrinsic Motivation and Self-Determination in Human Behavior, “the research has consistently shown that any contingent payment system tends to undermine intrinsic motivation.” The basic effect is the same for a variety of rewards and tasks, although extrinsic motivators are particularly destructive when tied to interesting or complicated tasks.” Incentives like punitive actions perversely affect human behavior; opportunity for exploration, improvement of self, advancing of one’s self image, achieving personal goals and renders obsolete intrinsic motivation."

The last question that remains is, “Do incentives  motivate passion?”

The answer is NOT, as Jonathan Friedman of University of Toronto stated simply, “If they have to bribe me to do it, it must be something I wouldn’t want to do.” So it comes to this final conclusion should anyone care to listen: You cannot force passion into a mind that is closed to it, with rewards! Incentives squelch innovation and real growth.

REFERENCES:

1.         “Financial Incentives” G. Douglas Jenkins, Jr. in Generalizing from Laboratory to Field          Settings, edited by Edwin A. Locke (Lexington, MA: Lexington Books, 1986.

2.        “Intrinsic and Extrinsic Motivational Orientations: Reward-Induced Changes in Preference for Complexity” Thane S. Pittman, Jolee Emery, and Ann K. Boggiano (Journal of Personality and Social Psychology March 1982).

3.       “Enemies of Exploration: Self-Initiated Versus Other-Initiated Learning,” John Condry (Journal of Personality and Social Psychology July 1977).

4.       “Toward a Theory of Task Motivation and Incentives” Edwin A. Locke (Organizational Behavior and Human Performance Volume 3, 1968).

5.       Intrinsic Motivation and Self-Determination in Human Behavior, Edward L. Deci and Richard M. Ryan (New York: Plenum Press, 1985).