Research Confirms Dangers of Skewed Priorities and Improper Incentives

What most motivates people in your company? Could your priorities be encouraging bad behavior?

11/29/22 – – Cautionary research results highlighted in yesterday’s Washington Post should be taken very seriously by all leaders of businesses and organizations: “Incentives can unintentionally spur unethical behavior . . . and create a workplace culture that pulls employees away from their values.”

A study published earlier this year in the Academy of Management Annals is the focus of the Post article titled, “Incentives Can Lead Employees to Cheat or Lie at Work.” Tae-Youn Park, director of research at Cornell’s Institute for Compensation Studies, collaborated with researchers from Vanderbilt and South Korea’s Hongik University to examine, “the relationship between incentive programs and ethics across a range of industries.” What they found is that well-intentioned incentive programs designed to improve individual and group performance “can be a cure as well as a poison.”

These findings should come as no surprise to readers of this blog and The Crisis Preparedness Quotient. One of the nine common sources I discuss from which the majority of crises spring is “priorities.” To prevent self-inflicted crises, I encourage managers to address — on a regular basis — these two questions: What most motivates people in your company? Could your priorities be encouraging bad behavior?

Lofty goals are fine, and the right incentives can pay dividends. As a former high school lacrosse coach, I can attest to the fact that awarding players points for both goals and assists leads to better ball movement and more scores. But in business, intense performance pressures as well as improper incentives and rewards can lead even highly respected companies to do bad things. Whenever the end justifies the means, crises are right around the corner. Recent examples of this all-too-common pitfall abound:

Competitive threats led aircraft manufacturer Boeing to cut corners, rushing its 737 MAX into service, leading to fatal crashes in Indonesia and Ethiopia. Volkswagen engineers installed software in diesel engines to cheat emissions tests at the same time the company was pursuing the goal of beating GM and Toyota to be the top-selling global automotive manufacturer. Wells Fargo’s retail bankers opened sham accounts to achieve unrealistic, hour-by-hour sales targets to deliver unsustainable growth.

Park’s research found that programs intended to achieve laudable goals often encourage negative outcomes:

“In health care, for example, doctors who were rewarded for achieving goals such as better patient outcomes got higher bonuses by selectively admitting healthier patients, Park said. In education, the frequency of cheating on standardized tests by teachers or administrators was higher when teachers were rewarded for classes that performed better, according to data from Chicago public schools. In for-profit business, chief financial officers were more likely to withhold negative information about their firms if their bonuses were tied to the company’s financial targets.”

Another important finding is that cheaters love company:

“It is harder for workers to justify bad behavior if they are acting solely on their own behalf, Park said. Team-based incentives, on the other hand, can encourage members to ignore or conceal ethical lapses to avoid disrupting the group. Studies that compared employees in individual incentive systems and team-based ones consistently showed that teams are more likely to falsify data and misrepresent products to juice performance.”

Recognizing the dangers of skewed priorities, I encourage clients to review their compensation programs, especially the at-risk and incentive components. You want to make sure you are not creating irresistible cash incentives to sacrifice long-term success for short-term reward. Companies and organizations can avoid the nightmare of priority-driven crises by embracing and continually reinforcing a clearly articulated purpose and ethical culture. Strong internal checks and balances help. And it’s important to set more qualitative, rather than purely quantitative goals.

Perhaps the best advice in the Post article comes from Bill Becker, associate professor of management at Virginia Tech, who warns that, “Money brings out the worst in people, and it almost never brings out their best.” He concludes that, “What we really want is to be respected and valued. That’s when we’re really doing our best work, but that takes great leaders who do that on a daily basis.”

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