The value of information and risk taking – Are your incentives encouraging cheating

I found this quote recently which amused me ; “Sunlight is the best of disinfectants ” – made by a Supreme court judge in the US to illustrate that once you look carefully at the evidence openly and in plain sight of the interested parties [jurors] , you soon get to clear out what society [and business] are trying to rid themselves of ;cheats.

Here’s another – W.C.Fields  “A thing worth having is worth cheating for”…

My favourite of his is ” I never drink water- it might be habit forming”but thats not relevant to this debate , but it does make me smile.

They are in different frames of reference but align in terms of human behaviour and preferred outcomes i.e. if you set the wrong incentive , human behaviour will either obfuscate data to prove achievement or cheat to prove achievement. Actually achieving the objective is also a possibility 🙂

Does this apply to your business ? is your remuneration structure aligned to openness and genuine achievement ? Or is it prone to driving the wrong behaviour, short cuts and long term profit damage.

A real life example : the Post Office put a scheme in place to measure parcels and letters delivered vs. returns to the sorting office. Brilliant , post man efficiency measured at last.

However…. some canny individuals started to put the undelivered mail back into post boxes therefore returning to the depot with empty bags and 100% achievement. slam dunk ,how hard was that you might think!

Outcome , increase in sorting volumes and the delivery process done twice .. not really what the management were after was it. But the objective was achieved, no ? yes?

Many remuneration and incentive schemes aim to be simple but in larger companies seem constructed to catch any possible “gaming of the scheme “with caveats, clauses and opt outs where in reality ” at the boards discretion” should be the only line it actually needed.

The problem with that is how do you motivate the masses with such a nebulous line of encouragement; to hand over their good ideas and discretionary effort for long periods – engender trust if you will. So we find ever more complicated objectives, job descriptions and remuneration guidelines to catch out the little schemers. Substantial IT investment to track the outcomes you want to measure and pay out on and substantial HR and management time taken discussing said control frameworks.

Or …you can set incentives simply and accept less than 100% alignment ; Key to this is the right incentive at the right level and take the excess activity out of the system and have that as the extra profit you were aiming for? that’s how small companies work, why not larger?

Example : will a secretary be happy with a bonus scheme which rests on Group Plc performance ? Some consider them pointless , discount it as value to them and therefore prioritise what their immediate manager wants to keep the relationship positive and increase job security. In other words , simple hierarchy of needs has a greater impact than etherial targets set by people they never met, who live and work in different location , sometimes countries and earn multiples of what they do.

This might indicate ; lack of trust , cultural misalignment and active knowledge of gaming the metrics.

Why bother you might ask . Well tomorrow we will cover Information , Incentive and Risk ,and how people move along that axis. A fan of Daniel Kahneman’s work , you may find examples of his propositions sprinkled through it.[not the Nobel prize winning papers obviously]

We can take some of this people insight and use incentives for customers on the same basis, generate more profit from doing the same and how individual/customers discount price opposite perceived risk.

See you tomorrow





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