Incentives for Successl
By Tom Peters
Tom Peters is a management consultant with an MBA and a Ph.D. from Stanford. He co-authored In Search of Excellence: Lessons from America’s Best-Run Companies, the best-selling business book on record. He published the following response to Alfie Kohn’s article in 1988.
A recent New Yorker cartoon pictures a blackboard bursting with obscure mathematical formulations. One scientist, looking at the board, says to a colleague, “Oh, if only it were so simple.” I couldn’t help recalling the cartoon as I read Alfie Kohn’s article in the January issue of Inc., “Incentives Can Be Bad for Business.”
Kohn clearly knows his field. From an academic perspective, his article is superb. He musters compelling evidence to argue that – on the production line or in the research lab – workers will respond most creatively if they have a sense of autonomy, on the one hand, and if they value a task or a job for its own sake, on the other. He is saying that intrinsic motivation is the key to high performance, and I certainly agree.
Kohn further argues that companies can undermine worker creativity by providing the wrong incentives – if, say, they put too much emphasis on extrinsic rewards, such as money, prizes, and positive feedback. These kinds of incentives, he says, lead employees to focus on performance that is quick, riskless (that is, noninnovative), and geared strictly toward volume of output. If a company does use incentives, Kohn recommends that they emphasize quality of output, rather than quantity, and that they encourage self-control (that is, innovation and risk taking). For similar reasons, Kohn argues against establishing a competitive environment in a company. He particularly abhors contests in which some people get no reward because other individuals or groups did better.
On a point-by-point basis, I have no quarrel with any of Kohn’s arguments. Moreover, I find him to be a thorough student of the arcane experimental literature on social psychology. But when it comes to the real world of business, I worry that he leaves the wrong impression on a number of scores.
Kohn does a nasty disservice to Harvard psychologist B. F. Skinner by portraying him as a mindless advocate of “waving dollar bills in front of people.” To be sure, Skinner is the popularizer of positive reinforcement, but Kohn ignores his most important finding, one with huge implications for business, namely: positive reinforcement is much more beneficial than negative.
That’s a key insight because negative reinforcement (criticism) is far and away the most common means by which American companies try to influence performance. They constantly tell people what they did wrong, rather than what they did right. Yet, as Skinner showed, negative reinforcement – even if well intended – seldom leads to improved performance. More often, it produces a) convoluted efforts to hide negative results and b) risk-averse behavior to a much greater degree than that which Kohn decries when criticizing the excesses of positive reinforcement.
Anyone who has spent time observing real-life business practices knows that Skinner is absolutely right on this point. The great quality advocate, W. Edwards Deming, a statistician who has little truck with psychologists, is adamant in his agreement. He has said that the American propensity for negative performance appraisals is our number-one management problem. Nor is he being totally facetious when he contends that it takes half a year for the average manager to recuperate from his or her performance review.
And, by the way, Skinner would be the first to agree with Kohn that “surprising” positive incentives work best. Skinner, after all, was the one who discovered that aperiodic (random, unexpected) “schedules of reinforcement” are much more powerful shapers of future behavior than periodic (routine, expected) schedules.
Business Problem Number One Is the Almost Total Absence of Positive Reinforcement
Although Kohn is correct about the pitfalls of positive reinforcement, he is arguing in a vacuum. If only American business were having trouble because of too much emphasis on extrinsic motivation, resulting in the denigration of intrinsic motivation. Unfortunately, the much larger problem is the almost total absence of positive reinforcement in the average U.S. company, regardless of size.
Consider these two anecdotal, but typical, examples. One involves Sam Preston, a recently retired executive vice-president of S.c. Johnson & Son, Inc., which makes Johnson Wax among other products. Throughout his career, Preston would look for positive acts by employees. Whenever he stumbled on one, he would pen a quick note to the person responsible, concluding with the initials “DWD.” Eventually, the recipients figured out that “DWD” stood for “Damned Well Done.” When I met Preston, he had just finished his round of retirement parties, and he spoke of his amazement as person after person came up, occasionally verging on tears, to thank him for a single “DWD” that he’d sent as much as 15 years earlier.
I heard a similar story from a man who had recently bought a quarry in New England. Upon learning that a certain quarryman had cut an extraordinary amount of rock the day before, the new owner had impulsively grabbed a walkie-talkie to offer congratulations and praise. Shortly thereafter, he was talking to another employee and learned that the quarryman had been on cloud nine for days. Turn out that this stellar, 25-year veteran of rock-blasting had never before received a word of praise from his boss.
The plain fact is that, in America, workers and managers receive far too little positive reinforcement for their contributions. The average employee faces a dauting array of hurdles and uncertainties. Simply to make it through the day is often work a “well done.” But that average person is not likely to receive even a doff of the cap from year to year, or decade to decade, let alone day to day. On a personal note, I must admit to Mr. Kohn that, despite having achieved a modicum of acclaim, I myself can never get enough of that wonderful stuff called positive reinforcement – and if you must schedule your applause in advance, it’s jolly well fine with me.
Positive Reinforcement Need Not Be Quantity Based
Kohn cautions against rote behavior stemming from positive reinforcement, but the real source of rote behavior is excessive attention to volume. What gets measured gets done, as the saying goes, and – at the vast majority of companies – what gets measured is volume. What gets overlooked is quality. The operative phrase is: “Don’t improve it; ship it.” That’s a big problem, but what else can we expect when volume is all that we try to measure?
The solution, however, is not to abandon incentives, but to base them on nonvolumetric factors as well. In this regard, I was delighted to learn recently that First Chicago Corp. is giving some of its managers bonuses based in part on their success in meeting certain “minimally acceptable performance” goals, as determined by customers.
Similarly, it was quality of service that helped Phil Bressler establish himself as Domino Pizza’s top franchisee in the important category of repeat business. Each of his stores would give out a volume-based award for best driver. Before the award was made, however, customers were asked to evaluate the driver’s performance. If the quality of service didn’t measure up, then no award.
The point is, there are ways to measure what was once thought to be unmeasurable. You can keep score on quality, customer service, responsiveness, innovativeness, even customer listening. Moreover, the sheer act of keeping score will provide a positive stimulant to improvement. Job number two, I’d agree, is to get the right balance between intrinsic and extrinsic motivational factors, but first let’s put some of these other missing indicators on the map.
And Then There Is the Little Matter of Equity, or Share and Share Alike
It’s not easy to develop a good incentive system, and there are undoubtedly thousands of ways to construct useless, even damaging, ones. To read Kohn’s article, you might think that bad incentive systems are the rule at most companies. The truth, however, is that most companies don’t offer any incentives at all to their employees, except to a thimbleful of folks at the top.
A year and a century ago, in 1887, William Cooper Procter, president of Procter & Gamble co., said that the chief challenge of big business was to shape its policies so that each worker would feel he was a vital part of his company with a chance to share in its success. P&G’s landmark profit-distribution plan divided profits between the company and its workers in the same proportion that labor bore the total cost. If wages were 50% of costs, the workers’ bonuses would be a whopping one-half of profits. Sadly, P&G’s example was not widely emulated, and today only 15% of the U.S. work force participates in such a profit-distribution or gain-sharing plan. A paltry 10% own stock in their companies, despite the generous ESOP incentives available since 1974.
The significance of the appalling record was suggested by a survey that Daniel Yankelovich conducted in the early 1980s. U.S. and Japanese workers were asked to agree or disagree with the statement, “I have an inner need to do the best I can, regardless of pay.” The U.S. workers, maligned by so many (especially their managers), outscored the Japanese. Then the two groups were asked a much more practical question: Who did they think would benefit most from an increase in worker productivity? This time, the tables were turned. Some 93% of Japanese workers thought that they would be the prime beneficiaries, while only 9% of the Americans felt that way. In other words, Japanese workers believe that increased productivity is a matter of self-interest – and the facts support them.
So Kohn may be right about the pitfalls of incentive systems, but he’s dead wrong in suggesting that bad incentive systems are a major problem for American business. The far greater – and more commonplace – sin is to ignore the worker’s incremental contribution altogether.
Competition Is Still the Spice of Life
The ancient philosopher’s line is that the world would have no beauty without contrasting ugliness. For better or (sometimes certainly) for worse, comparison – which is to say, competition – is the chief motivator for individuals and groups, whether it takes place in teen beauty pageants, among Nobel-level scientists, or on the shop floor.
Now competition can go too far. I agree with Kohn that competition may cause a worker to focus excessively on speed and what the guy next to him is doing, thereby losing sight of the intrinsic value (that is, quality) of the task at hand. I have seen the disastrous consequences of basing incentive pay on work group competition – especially when workers are not trained adequately, and when the company does not provide the time, the place, and the tools to work creatively on individual and team improvement.
On the other hand, I have also seen group competition work wonders in a plant, under the right conditions. Look at New United Motor Manufacturing Inc. (NUMMI), the extraordinary joint venture between General Motors and Toyota. Its predecessor, a GM plant, was at the bottom of the heap in terms of productivity, quality, absenteeism, and numerous other performance indicators. Now, the 2,500-person operation scores at the top. The dramatic turnaround is mainly a result of employee involvement. Every worker is trained in at least a half-dozen jobs; each person must be good enough to train his or her colleagues; fellow hourly workers are team leaders; and the company provides all the training, tools, time, and space required for problem solving. Competition among teams is sky high, on the job and off, but meticulous preparation came first.
But, group competitions aside, I think Kohn is focusing on a secondary issue here. We face enormous business problems today, and they were not caused by too much competition. Rather they reflect the broad deterioration of the national economy – a consequence of the virtual absence of competition from World War II until about 1965. During that period, almost all of our major industries became tidy oligopolies, in no shape to compete with anyone.
Kohn decries the ill effects of copying, and too much distraction with competition. I submit that it is far worse to ignore the competitive reality, and to refuse to copy at all. Consider the Ford Taurus, one of the biggest American product successes in decades. For years, Ford had systematically ignored or denigrated Japanese automobiles and, to some extent, European ones as well. In developing the Taurus, however, it did a complete about-face, purchasing hundreds of vehicles from around the globe. Following a copy-and-exceed strategy, Ford set out to best those vehicles on hundreds of features, from the inner workings of the engine to the ease of gas cap removability. That is, of course, precisely the strategy for which we once scorned the Japanese. Ironically, it is the same strategy with which the American (and then the Germans) surpassed the British in years gone by. The process may not be as creative as Kohn would like, and it certainly reflects an obsession with competition. But it works. And its success demonstrates once again that we have far more to fear from too little than from too much competition.
Let me just add a personal note in conclusion. Many years ago, I was a Ph.D. student of management, and I read with pleasure almost every word of psychologist L. Edward Deci, whom Kohn so reveres. Intrinsic motivation and autonomy have been major, if not dominate, themes in all three of my books. And I acknowledge that the astonishing success of enterprises such as NUMMI are testimony to the importance of intrinsic motivation and self-control. For drawing attention to those issues, Alfie Kohn deserves two full and hearty cheers.
But I must withhold cheer number three, for I feel that, overall, Kohn is addressing matters of secondary concern. Excessive emphasis on incentives and competition is simply not a widespread problem in American business. What we need is a lot more positive reinforcement, and a lot less of the negative kind, throughout the corporate landscape. And far from cautioning companies about the dangers of incentives, we should be applauding those that offer their employees a bigger piece of the action. Likewise, we should welcome competition, whatever its source. We have competitive pressure to thank for the positive things that are happening in large companies these days, including the new willingness to copy from the best. Better that than the practices of inward-looking companies and workers, closed to ideas that were Not Invented Here. They are the ones who have made such a bungle of American economic performance worldwide over the past 20 years.
Life ain’t simple, as that New Yorker cartoon suggested, and neither is business. Kohn has much to say that is thoughtful and wise, and that ought to be heeded. But let’s not ignore the forest for the trees.