The Impactful Executive: Weekly Brief Article
Read time: 1.5 min
Chasing the Wrong Carrot: Rewarding the Opposite of What We Want
Ever Been Rewarded for Something Completely Different? You're Not Alone
Institutions consistently reward behaviors different from those they desire. In 1975, Steve Kerr first outlined the problem of leaders “rewarding outcome A while hoping for outcome B”.
Building on this, James Heskett draws on examples from diverse sectors:
The political sphere: Citizens support politicians championing broad, universally appealing ideas, but interest wanes as “operative level” details are discussed. In this way, politicians are rewarded for “high-acceptance, low-quality goals,” making promises of ‘health care for all’ while avoiding the details.
The academic world: Universities exist to teach students. However, prioritizing research and publication provides greater mobility for faculty. This causes a disconnect and results in accusations of a lack of interest in good teaching among students, administrators, and financial contributors.
The corporate sector: While desiring long-term business success, the overwhelming majority of incentives, particularly those shaped by market forces, skew towards short-term performance. Heskett notes: “We hope for collaboration and teamwork for the benefit of the organization but provide incentives for individual performance.”
Uri Gneezy's recent book, "Mixed Signals," underscores the failure of organizations to comprehend the intricacies surrounding incentives and to mitigate unintended consequences. The Wells Fargo Fiasco erupted in 2016, when Wells Fargo employees opened two million accounts in their customers' names without their knowledge or consent (based on the bank’s compensation system, which rewarded opening new accounts to expand and deepen customer relationships).
Nearly half a century after Kerr’s publication, organizations grapple with aligning their rewards to their strategic objectives. The onus lies on all institutions to bridge this gap and match their incentives with their ambitions.
So What: Where, either through complacency or otherwise, are you being pushed to accept ‘high-acceptance, low-quality goals’?
Source:
Heskett, J. L. (2023, August 1). As Leaders, Why Do We Continue to Reward A, While Hoping for B? [Web log post]. Harvard Business School Working Knowledge. (Link)
