An interesting concept from this week's readings was the three effects Pfeffer & Sutton (2006) discussed related to financial incentives. They pointed out that these incentives can either enhance organizational performance or if badly designed or misapplied can damage performance. The first effect is the motivational effect where financial incentives motivate more effort. An example of the motivational effect would be the ski company that I worked for where you had to put together an entire ski outfit for someone in order to get commission. This means the sales person had to work and sell more to get the extra money. It took more effort and as a result he/she earned more money. The second effect is the informational effect where the incentive provides people with information about what the company values and what its priorities are. An example the book listed was a reward not for sales or volume moved, but for shrink (lost or stolen inventory) paid to each individual within a store. The last effect is the selection effect. This effect is able to attract the correct people for the position and drive away the wrong people. An example is someone who is willing to work harder and longer if needed within a competitive environment when there is an opportunity to earn more money. Individuals who do not like competitive environments but choose jobs where lower motivation and performance is not penalized as heavily will steer clear of financial incentive-driven careers. I think these are important to recognize because financial incentives are often viewed as being negative, particularly from the consumer's perspective. I know people have asked me at the ski shop how much commission I get and I always replied just on some things. The thought of commission makes some people really uncomfortable because it makes them question the integrity of their sales person. People don't take into account that although the sales person is receiving a commission they might also be more motivated to help and better equipped to help the individual find the correct items due to a stronger sales knowledge. These effects are important for managers because, when used appropriately, it can help them to find the best people to fill the jobs within the company. They can find motivated, proactive people who will take a strong interest in the company and work hard to give themselves a competitive edge which typically in turns help the company out as well. Financial incentives still should be implemented with caution because I have seen times where it makes the sales person aggressive. Also managers should be careful not to use financial incentives as a form of punishment. The article linked here lists pros and cons of financial incentives, but the important part is about 3/4 way down the page where it discusses incentives as punishments. Do you think there are other ways to sort out who is best for the job and to instill motivation without offering money? How has your experience been when working with people (purchasing items either personally or professionally) who are driven by financial incentives?
A large concern is that financial incentives can attract the wrong type of talent. People go to companies where they feel they can best succeed and simultaneously earn the most income. The issue with this is that those people will leave for other jobs that offer more money or better incentives. So, you have people who go to work for themselves and not the company only to leave for another company offering more. If everything is about the numbers after a dollar sign, how do you entice people into an organization and get them to stay other than money and benefits? James Treybig (the CEO of Tandem Computers) did something relatively radical when hiring new employees (even at senior executive levels) they would not disclose the salary or benefits. They only said that they were offering competitive wages and benefits to their new employee. If the employee insisted on knowing his/her precise wage, they were no longer considered as a prospective candidate. His rationale for this? Treybig made the point that if people came for money, they would also leave for money. He found that turnover was disruptive and wanted people to stay with the organization because they liked the company, the work, the management, the culture, other employees. I think that this is a bold move, but if someone truly loves the job and understands the position he/she is entering into (given the 'competitive wages and benefits package') then there should be no issue. This might be the best way to get people into the company for the company and not for the money. I think management could utilize this for a smaller organization. Somewhere like UPMC might not be able to get away with this for a position such as an RN where there are thousands of them. Management would have to be very careful though to actually offer a competitive wage and benefit package. The employee is taking a large leap of faith by going into a position with no clue what he/she is getting in terms of compensation. The trust between the employee and the employer would be shattered if it was far below the average. It is something that could work, but is very risky and must be cautiously executed. How do you think the job application process would be if people never knew what they would be getting paid until they were employed would be? Would you take a job not knowing the exact amount of money you'd be making (keep in mind it's competitive in terms of similar positions, so you know around what amount you would be making)?
The article The Incentive Bubble by Mihir Desai discusses the potential of distorted incentives, the need to pop the financial incentive bubble, and how to successfully pop that bubble. The article lists some opinions, and while most are fact-based, none seem to be based on scientific evidence. Some of the information provided in this article includes how incentives have become distorted (asymmetrical payoffs and monitor managers/investors outsourced performance evaluations). There needs to be a baseline for normal work outcome expectations, so that financial rewards can be distributed for going above the baseline. With respect to the information provided in the article, there are a lot of strong suggestions that are proposed. I think that they would be more reliable if there was scientific evidence backing those suggestions. For example, the information would be more credible if it included successful examples of where some of the suggestions were implemented and had positive outcomes. The suggestions are good, but they are difficult to believe effective without having tried some of them out for results. It is easy to make promising suggestions that may not be realistic. The article, on first glance seems really credible, but after evaluating it from a scientific-evidence viewpoint, it certainly becomes less credible and more like a false promise.
I really enjoyed learning about the impacts of financial incentives (both good and bad). I found the good examples of the incentives very interesting because I often wouldn't think of any benefit of financial incentives except to the person receiving the incentive. The other thing I really enjoyed learning about was the TED talks. The TED talk videos provided a lot of insight into different things regarding topics such as choices and positive psychology. I look forward to working further on our group project next week and the discussions regarding team effectiveness.
Desai, M. (2012, March). The Incentive Bubble. Hardvard Business Review. Retrieved from: http://hbr.org/2012/03/the-incentive-bubble/ar/5.
Pfeffer, J. & Sutton, R. I. (2006). Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management. Hardvard Business School Press: Boston.
Cameron, you did a really great job of summarizing the reading this week. I like how you further discussed the part about the company not telling job applicants their starting salary or benefits package. When I read this I thought that it was a little unfair that the company would not offer the job to an applicant if the applicant explicitly asked about the salary. I do not think wanting to know one's salary is selfish or greedy, but rather is prudent. If I were applying for a new job a lot of planning goes into this. Transitioning to a new job could mean a potential pay cut and that could result in a switching around of finances. So, I don't think asking for an explanation as to your salary is poor business practice. I believe it is necessary and responsible.
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