Helping Good Leaders Face Tough Realities
 

Incentive programs are a copout.  Incentive programs appeal to leaders who want to motivate improvements in the performance of key people.  Their appeal lies in one simple delusion - that a leader can put a person's performance on "auto-pilot."  

Incentive programs are a way to avoid being a leader.  The delusion is that with the right dangling carrots, leaders can set goals, put the program in place and watch the results roll in!  This is fantasy thinking by leaders who don't want to face the tough realities of the ups and downs of real life. 

Does this mean that the use of incentives is a bad idea?  Not at all!  It is the institutionalizing of incentives that is a bad idea.  The bad part is in the word "program," not "incentive."  The reason an institutionalized incentive program is ineffective is that it eventually backfires.  Participants in the program learn how to manipulate the program for their own benefit.

A couple of years ago, Business Week magazine reported that the president of Honda worldwide recognized the dangers of incentive programs and abolished sales targets.  He said that the push to sell more cars came at the risk of wanting to serve the customer with ever-improving quality.  He said he  preferred to risk riding the sales cycle as it naturally unfolded.

Enron, Worldcom and other corporate leadership disasters were all motivated by incentive programs that personally benefited the leaders - stocks and options programs.  Sales departments get bonuses based on hitting targets.  Customer service groups get bonuses based on achieving "quality" goals, such as using customer satisfaction surveys. 

As soon as these get institutionalized, the organization is at risk.  Sales people stop selling in September if their targets are achieved.  They don't want to inflate next year's "base" which will then require another 20-30% increase on top of that.  Customer service groups find ways to detour low-score customers from completing the survey.  CEO's find ways to manipulate accruals and depreciation accounting to deliver "predictable" financial results that the Street eagerly wants every quarter.

Leaders want their businesses to perform on auto-pilot.   This is a leadership copout so that the leader doesn't have to face the tough realities of the highs and lows of normal business cycles.  It's a leadership copout so that the leader doesn't have to teach, coach and inspire his or her people to do their best because doing their best is the right thing to do.  Instead, institutionalized incentive programs are a way to "buy" people into doing what the leader wants.  It's manipulation and it breeds counter-manipulation.

The alternative is Random Rewards.   Leaders who know what they want from others and invest time & energy to notice it and reward it from time to time will get behavior change that is real.  People begin to do what the leader wants, freely and willingly, not simple to reap an incentive. 

More next month on how Random Rewards works and why it's one way WIN leaders successfully overcome tough realities.

John Kuypers

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