Some years ago, Men's Wearhouse founder George Zimmer came to a class I taught to discuss a case study I had written on his company.
Zimmer commented on a bonus program I had written about where each store employee (except the store manager) would receive $20 if the store met its "good" sales target for the month, and $40 if it met its "excellent" sales goal. My students thought these amounts were quite small, but Zimmer thought the incentives were perfectly sized. They were large enough to provide some recognition of store achievement, he said, but more importantly, the payouts gave people a chance to celebrate success together without being large enough to distort people's behaviors.
Zimmer's insight that, in the case of incentives, less is often better than more is too infrequently embraced by leaders who instead seek to use substantial rewards to fundamentally channel behavior.
HR Managers and c-suite executives would do well to learn from Zimmer's wisdom. While most employees today assume incentives will be part of their job, how large they are and how they are presented can substantially impact an organization.
Incentives Can Undermine or Crowd Out Intrinsic Motivation
Beginning in the 1970s, studies in psychology found that providing people rewards—extrinsic incentives—could undermine intrinsic motivation for engaging in inherently interesting tasks. One theory suggested that people found incentives controlling, and rebelled against attempts to control their behavior. Another perspective suggested that people interpreted incentives as signaling that a task was inherently unpleasant, reducing their interest in doing it. The takeaway? Incentives have the potential to reduce people's motivation and interest in tasks.
Even economists, who have traditionally looked more favorably on incentives, have also argued that incentives can backfire. They argue that providing extrinsic incentives "crowds out" intrinsic interests in doing something. Consequently, incentives can backfire, and make it less likely that people will do what the incentives want them to do. For instance, one study observed that parents were more often late in picking up their children from a day care center when a fine was imposed, while yet other researchers observed that volunteers who were paid a small amount worked fewer hours than volunteers who were not paid. Here, the evidence suggests that using incentives to drive desired behavior may not work.
Consistent with the idea that smaller is better, smaller incentives will be less likely to crowd out or reduce intrinsic motivation because smaller incentives are less psychologically prominent and salient. For organizations concerned about maintaining intrinsic task motivation—which is probably most workplaces—the crowding out and undermining research provides one more reason to be cautious in the use of incentives.
Incentives Drive Behavior, But in Often Unanticipated—and Counterproductive—Ways
As Bob Sutton and I pointed out in our book on evidence-based management, a huge problem with incentives is that they are too effective at influencing behaviors. And most people and companies aren't great at anticipating how behaviors will change in response to incentives. There are enough examples of this to fill a book—or maybe several.
In 2018, William Dudley, CEO of the Federal Reserve Bank of New York, noted that "misaligned incentives contributed greatly to the 2008 financial crisis." In the scenario that Dudley is referring to, many mortgage brokers were compensated for the number of loans they made—not necessarily for making sound loans that would be repaid. And many of the incentives for mortgage brokers for senior financial industry executives were short-term rewards. Meanwhile, the assets being created (the loans) and the financial results were inherently longer-term. The time horizon on incentives needs to match the time horizon of the results being affective. Simply put, short-term incentives aren't going to be very good for creating long-term results.
How to Make Incentives Work
Based on extensive empirical evidence, there are some simple but important implications for implementing incentives in ways that aren't likely to cause misbehavior that adversely affects organizations.
First, and most importantly, keep incentives small enough to not overly influence behavior. That may seem counterintuitive—many workplaces implement incentives precisely to influence behavior—but, as noted, people are often quite bad at predicting the ways in which incentives may drive behavior.
Second, spend time trying to anticipate how people could achieve the goals signaled by incentives in ways that are harmful to the organization's interests and try to put up various guardrails to detect and deter such behavior. One way to do this, is to monitor how rewards are being received and the behaviors associated with them based on consistent conversations with employees who are benefiting from the rewards program.
And third, if incentives are driving bad behavior, don't do what many workplaces do, which is to try and solve an incentive-based problem by implementing even more incentives. Many companies try to use incentives to substitute for leadership (coaching and feedback) or a strong, positive organizational culture. As research going back decades from places like shows, leader behavior matters a lot in motivating performance and reducing turnover. Incentives are a poor substitute.
In the case of incentives, the inescapable conclusion is that less—less reliance, less use, less magnitude—is most often better than more.
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Citadele: Investing in a culture of learning and individual performance management
Citadele Group is an innovative, full-service financial group for both private individuals and companies. The Group offers a complete portfolio of banking, financial and private capital management services in the Baltic states. Citadele’s mission is to provide more opportunities to its clients by redefining modern banking – it aims to change the meaning of current financial business with innovations and an outstanding client experience beyond the formal frame. With the goal of becoming the Baltic banking champion, Citadele offers multiple career paths and a variety of professional development opportunities for all its employees. Our new path towards ambitious and modern goals also demands a change within our employees’ learning and performance tracking model. Improved tools and solutions are needed to streamline Citadele’s employee progression processes across 37 offices. Why Cornerstone? Recognising that employees are its most valuable asset, Citadele made sure that employees are the top priority in the process of change. Bearing this in mind, Citadele had three key requirements during the search for its talent management solution: the system needed to be easy-to-use; it needed to have the option to involve employees in individual goal-setting; and it needed to track feedback on an ongoing basis and provide tracking for necessary compliance training. The system also needed to feature engaging and motivating content to help Citadele boost talent retention rates. After considering 20 other vendors, Citadele chose Cornerstone OnDemand as it ticked all the required boxes in terms of being both an established SaaS platform and a well-developed system that adhered to all of Citadele’s needs. After considering 20 other vendors, Citadele chose Cornerstone OnDemand as it ticked all the required boxes in terms of being both an established SaaS platform and a well-developed system that adhered to all of Citadele’s needs. The Results Increased productivity. Since implementing Cornerstone Performance, Citadele has seen an improvement in its employees’ performance. The simplified goal-setting, monitoring and continuous feedback system means that employees feel more confident and more motivated at work. That in turn has led to increased productivity levels. According to Citadele’s recent feedback survey, more than 95% of employees expressed satisfaction with the system. Streamlined performance processes. Before Cornerstone, all records regarding employees’ career, training, obligatory certifications and performance appraisals had to be integrated manually. With Cornerstone Performance, managers now receive detailed analytics at the click of a button, meaning that employee goals, training activities and tracking have become optimised and tailored to employees’ needs. Enhanced employer reputation. Citadele strives for the status of best employer in the Baltic region. Partnering with Cornerstone has helped Citadele to attract and retain even more talent in the industry Full compliance visibility. Compliance training was one of the key requirements for Citadele. Since implementing the Cornerstone e-learning module, the company is now confident that all its employees have the necessary training to meet the industry’s compliance requirements. Citadele is also able to successfully track completions in order to meet deadlines. Motivation and passion for learning. Implementing Cornerstone Performance has helped Citadele to significantly raise the ambition and motivation of its employees. Necessary changes in individual performance management have pushed Citadele forward regarding its learning culture. Since then, the company has selected Cornerstone’s e-learning as its next module, in addition to the already launched Cornerstone’s Performance Appraisal System. This will allow each employee to choose their most convenient way to learn, integrating learning into their everyday work.
Announcing the Convergence 2021 featured speakers: Dan Levy and Malala Yousafzai
We’re counting down the days to Cornerstone Convergence 2021. Get ready to join over 20,000 talent professionals on November 16-17 from the comfort of your laptop at this 100% virtual and completely free event. There’s so much to look forward to at this year’s event, but we’re especially excited to announce this year's special guest speakers, Dan Levy and Malala Yousafzai! Levy is an Emmy® Award-winning writer, actor, director and producer best known for his work on Schitt’s Creek. And Malala is the Co-Founder of Malala Fund, a recent Oxford graduate and a Nobel Prize laureate. To get you even more excited, here are two previews of their can't-miss Convergence sessions. Meeting the Moment with Dan Levy We give rise to our greatest work when we embrace the strengths that lie in our individuality and build a shared vision for something better. Join this session to hear Dan Levy share his personal journey of using creativity to overcome obstacles and Meet the Moment. Register to see Dan Levy A Moment with Malala What does it take to move forward in the face of adversity? To pursue a higher purpose, in spite of targeted violent backlash? When Pakistani education activist, Malala Yousafzai was just 15 she learned the answers to these questions as she recovered from an assassination attempt by the Taliban. Join this session to hear Malala share her story of personal resilience and collective purpose in driving global education for girls everywhere. Register to see Malala Even more excitement at Convergence 2021 The next year of work will be all about turning change into opportunities for everyone. Check out a sneak preview of just a few Convergence speakers and informative breakout sessions. Bold Thinkers Dealing with Microaggressions and Healing from Workplace Trauma – Featuring Minda Harts, CEO of The Memo LLC More Bold Thinker sessions led by Jason Lauritsen, Laurie Ruettimann, David Wilson, Josh Bersin and others. Customer Spotlights Delivering skills-first careers powered by AI – From Deutsche Post DHL and Alstom More strategies, tips and advice from the Cornerstone and Saba community in our Customer Spotlight track, featuring Dell Technologies, Johnson & Johnson, Nespresso, the Commonwealth of Kentucky and more. The Content Channel The World Premiere of Seat at the Table – A Cornerstone Original Series Other sessions focused on leading innovations in learning content from top providers such as Cornerstone Studios, TED, ITProTV and Mind Tools. Daily Keynotes Conversations with industry luminaries and Cornerstone executives about reimagining work and Cornerstone’s vision for leading the way. Join us at Convergence and Meet the Moment Convergence 2021 is your opportunity to get inspired, find “ah-ha” moments, connect with your peers and explore the future of work (and your role in it). As a talent leader, you're connecting what your people need to your organization's evolving goals so everyone thrives in this moment. We’ll see you there!
CGL: Improving learning and performance capability through advanced digital solutions
Communities often need help when their quality of life is affected by crime. Homelessness, drugs, alcohol and domestic abuse all have an impact on the local area and this is where the CGL (Change, Grow, Live – formerly known as CRI) steps in. Every year, more than 120,000 people across England and Wales receive assistance to get back on their feet. At CGL, full-time staff and volunteers work to encourage and motivate people to take control of their lives. CGL now has more than 3,000 staff and 1,000 volunteers in more than 160 regional centers. With so many employees across a wide region, keeping track of their progress was proving to be difficult. Previously, there were instances where notes were lost, handwriting was illegible, copies were not being shared, and many of the action points from the meetings were missed. CGL knew they had to address this by empowering its employees and volunteers by implementing a unified talent management solution. Why Cornerstone To overcome its reliance on paper-based records, CGL decided it had to go digital. It chose the talent management tools from Cornerstone OnDemand, selecting Cornerstone Learning and Cornerstone Performance solutions. The solutions enabled CGL to standardise its recordkeeping across the organisation. What happened in one office needed to be replicated in another, even if it is hundreds of miles away. So, for the first time, the performance management process was exactly the same across the country. Through Cornerstone, CGL now has the ability to deliver, track, view and report on all learning and development progress across the organisation. In turn, it brings unity and consistency to all its training modules. Furthermore, through Cornerstone’s cloud-based talent management software, CGL was able to empower its employees and volunteers through learning and development, as well as foster a more aligned performance management process throughout the organisation. The sharing of best practices developed a powerful team of employees and volunteers that could provide the best possible service to those that CGL works with. Results Created central access to learning. Cornerstone has provided CGL with central access to learning and development from any device. It has revolutionised the way that CGL is able to quality assure and monitor both individual and overall service performance. Improved Customer satisfaction. Sandra Eden, Development Manager at CGL in the Midlands, said “Quality performance reviews contribute to positive outcomes and achievements, improved staff engagement and customer and stakeholder satisfaction. The quantitative and qualitative detail driving everything that we do is now easily accessible at the click of a button.” Standardised performance reviews. CGL constructed a thorough marketing plan to prepare for the roll out of the new system across its workforce. With tailored emails outlining clear benefits – both from a line manager’s perspective and frontline perspective, uptake in the first week was 15 percent. So far, just a few months after rolling out the service, 1,791 performance reviews have been created across CGL. Increased employee and volunteer engagement. The newly introduced Welcome Page on the training site has had an immediate impact. An internal Stonewall diversity survey generated only 17 respondents prior to using Cornerstone; three days after a message and link were posted on the new hosting site, the number of respondents rose to 82 – a 482 percent increase. Kevin Crowley, Executive Director – Quality, Governance and Innovation at CGL values the visibility he has over the organisation. He said, “Using Cornerstone to bring performance development online has really given us a powerful tool to more closely align learning with performance and ensure our staff has the necessary skills and knowledge to provide the best possible service to those we work with. We have been able to build up a national picture of our strengths, and can identify and share good practice to ensure continuous improvement across the organisation.”