As a small business owner, I’m often looking for ways to better incentivize our staff to work hard and for our clients to stick with us. For our clients it’s not about “incentives”, but rather providing the right products, data and outcomes to satisfy their needs, so it’s not all that different from what an incentive might look like.
The problem is that not all incentives are good.
For example, stores that pay employees by commission are encouraging those employees to push for sales even if it’s a bad fit. If a store employee encourages me not to make a purchase, that will create a better bond and likely lead to more sales in the long run.
A few months ago, I went into the PGA Superstore with the hopes of getting a new driver. I made it clear that I was ready to spend money right then, but after some discussion and hitting a few balls with some of their new drivers, the employee suggested that I not purchase anything that day. Instead, they suggested that I first get some lessons to improve my swing, and then we’d be able to find a proper driver for my needs.
I was surprised that they turned down the sale, but they earned huge credibility in my eyes and I’ll certainly go back there when the time is right.
The Daycare in Israel
You may have heard this before, but I recently heard an extended version that added a new twist. Uri Gneezy tells the story of when his children were in daycare and there were times when he was running late to pick them up — he’d speed and do his best to get there on time so that the daycare staff wouldn’t have to wait around for him.
This was a big problem at the daycare, so they started imposing a $3 fine if you were more than 10 minutes late for pick-up. For Uri and many others, this caused them to be even later! $3 was worth paying in order to be late, so the rate of late pickups went way up, which is the opposite of what the staff had intended with that incentive. By paying $3, people like Uri didn’t feel bad about arriving late for pick-up.
Some time later, they dropped the $3 fee in the hopes that parents would again hustle to pick up their kids, but it didn’t work. Instead of considering being late to be a big deal, parents now equated being late to a value of just $3, so they continued to run late.
Improper incentives can cause more harm than good.
Measures are bad targets
It’s not unlike the idea of measures becoming worthless when they become a target. As soon as you set an incentive, people will work toward that instead of the real goal behind it. Sometimes it’s a good match, but often it isn’t.
If the direct result of the incentive is a good thing for your company, go for it, but think through any possible shortcuts that might lead to incentives being earned with no really value being created.