Sanford: What Kind of Incentives Work?

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Incentive marketing is a $46 billion plus industry. Incentive management is based on the belief that people will be motivated if—and often only if—they are recognized, rewarded, and incentivized toward goals.

In his bestselling book, Drive, Daniel Pink popularized the extensive research that invalidates such claims. But the belief in incentives has been hard to erode, mainly because they actually do work for one very specific kind of task: simple and short-term. Incentives do not work for complex projects and strategies that require longer term thinking, the kind that increasingly challenge business leadership.

Pink’s synthesizing work not only demonstrates that claims that incentives improve performance are not true; it also shows that incentives and rewards often do the opposite. They reduce motivation.

Some reports suggestthat it is now the incentive industry that keeps the old notions alive, just for the revenue into their businesses. What is less well known is that there are effective organizational approaches, validated for decades, by which people motivate themselves inside the business.

Starting in the late 80’s, Kingsford Charcoal utilized a method that eschewed incentives, bonuses, rewards, and recognition across functions and levels of the organization. The motivation they pursued was intrinsic, one which would have real staying power and avoid politicizing or gaming the system. “Short-term” and “competitive” are two of the many shortfalls research has identified as ways incentives reduce motivation. With the intrinsic system, no one can game it, because there is no contest.

Kingsford based its system of intrinsic motivation on three guidelines:

First, individuals or cross functional teams develop ideas to improve effectiveness for sets of customers or consumers in meaningful, measurable ways, such as “doneness to order.” They then gain alignment with all persons and functions affected by the changes. Improvements are aligned with business strategy and must demonstrate returns on earnings, margins, and cash flow. Improvement plans also include specific means for improving Earth’s regeneration and community and societal benefits must accrue as part of the work.

Second, the teams or individuals specify the new capabilities that will be developed for the business and its system of stakeholders (e.g. suppliers). Then they rally support in terms of time, investment, and capability to pull off their “promises” to develop the capability and produce the improvements. (Even early on at Kingsford these “promises beyond ableness” were extremely demanding commitments.) They hold progress meetings with those committed to the success of the improvement and to the new capabilities of members promising to deliver the new value.

"The only incentives that work—that maintain integrity with natural, intrinsic human drives and avoid producing the demotivating results of extrinsic rewards—are self-generated in the context of creating real value for customers and other stakeholders."" -Author, The Responsible Business, Carol Sanford

Third, when success is achieved—sometimes following multiple course corrections along the way—celebrations are staged for everyone not involved as the best way to let them know about the learning, market impacts, and new capabilities now available to the whole organization for the next set of tasks. These have resulted from a success that stretched everyone involved and really mattered to their customers. There are no external accolades, rewards, or bonuses beyond base pay increases. All motivation and reward is intrinsic, based on worker-generated improvements for customers in line with the strategic direction of the business. Celebrating teams invite others to come hear the story, creating the sense that there are no judges and no judged, no competition, no game. Everyone is “in it together.”

The only incentives that work—that maintain integrity with natural, intrinsic human drives and avoid producing the demotivating results of extrinsic rewards—are self-generated in the context of creating real value for customers and other stakeholders. Intrinsic motivation comes from identifying something worth taking on for a customer to whom it will really matter, doing the work to gain alignment, then leading the effort to make it happen. When motivation originates from inside individuals and teams, it evokes the “will” to “keep after it” until there is success. All meaningful accolades also come from those who do the work and create the success—from themselves to themselves—as they share their experience and the results with others. These celebrations are truly spirited events!

In The Responsible Business: Reimagining Sustainability and Success, I give further in-depth examples from my clients over the last thirty-five years, demonstrating the importance of intrinsic motivation to any organization’s success.

Carol Sanford is the author of The Responsible Business: Reimagining Sustainability and Success. She speaks about and works with businesses to evolve their strategy and organizations to be more responsible universally, even in unexpected place like management practices.