Thoughts on Incentives

Happy Friday,

You use incentives to shape the outcome you want. Next to good leadership, they're the most powerful tool an organization has to drive success.

Incentives cause people to act a certain way, and they come in various flavors – e.g., organizational values, recognition, strategic plans, cash bonuses, individual performance metrics, rules and requirements, and even personal growth opportunities.

The most important incentive at every organization is its core mission, i.e., the reason the organization exists, why people should join, and why they should care. Incentives with no clear connection to the mission undermine its intrinsic motivation, contributing to a more transactional workplace where people work for your money rather than the mission. Leaders are supposed to make that connection...

Behaviors drive outcomes. So incentivize behaviors, not outcomes. Outcome-based incentives tend to prioritize short-term gains (e.g., revenue targets) over long-term value (e.g., client trust). They always sound good, but frequently generate unintended consequences that harm the organization in the long run.

For example, incentivizing project profitability can compromise project quality. Overt pressure on utilization quietly encourages project cost overruns and siloed work. Top-down organization charts subtly encourage technical staff to pursue people manager positions rather than mastering their craft. Celebrating new clients and big project wins deprioritizes repeat business, client trust, and long-term relationships. Outcome-based incentives are a whack-a-mole of unintended consequences.

Behavior-focused incentives encourage sustainable habits like innovation, high-quality work, and trust building. For example, incentivizing engineers to learn AI-driven modeling fosters innovation. Incentivizing collaboration across disciplines or geographies increases cross-selling. Incentivizing repeat business drives client trust. Good stuff.

Take an inventory of the incentives currently influencing your organization or team. To capture them all, you need to view the subtleties of people's daily work experience through their eyes.

Map those incentives against the behaviors that drive success, e.g., quality, engagement, trust, repeat business, cross-selling, excellent project management, excellent communication, and innovation. Do they address these?

What you’ll find is that most incentives exist to compensate for uninspired leadership. At ALL levels. Motivated and inspired people on a mission don’t need a lot of incentives. With minimal coaching, they naturally exhibit the behaviors that result in success.

Unfortunately, leadership itself suffers from misplaced incentives. So, check on leadership incentives too. Chances are, they're focused on outcomes, with little or no incentive to exhibit the behaviors of an effective leader. So there ya go. If I'm wrong, let me know.

People do what they’re incentivized to do. The challenge for every organization is to craft and apply the optimal suite of incentives that drive the behaviors that deliver optimal outcomes. Good luck!

Have a great weekend!

Dave

Feedback and blowback are always welcome: dave@goodnewsfriday.com

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