Financial Incentives for Delivering Change

The Case Against Financial Incentives for Delivering Change

Sales teams see it regularly. Their employer asks them to climb a certain mountain—meet certain goals. The employer offers a bonus if they do it. The sales team climbs the mountain. Then they head back to their bosses and ask, “What mountain do you want us to scale next year?”

This is the financial incentive system, and we know it well. Financial incentives work when we’re trying to drive behavior. We as senior managers are rewarded when we drive certain outcomes. Sales people respond invariably to incentives. It happens in many places, many parts of many organizations. Incentives work to successfully change behavior.

But financial incentives don’t work when we’re trying to change beliefs. And changed beliefs are what we need when we’re trying to lead real, lasting change in our organizations.

How do we know this? Well, we’ve actually known it for decades. Forced Compliance Theory, which came out of Stanford in the 1950s, tells us that the more money and/or the more pressure we place on people to do something, the less likely they are to believe in what they’re doing.

One example: Researchers gave subjects $1 to do something they might not ordinarily do or believe in; they gave other subjects $20 to do the same thing. Those paid $20 (about $200 today) were significantly less likely to change their beliefs about what they did compared to the $1 recipients. Ironic, I know.

This doesn’t matter most of the time. We don’t need a sales team to “believe” meeting some sales target is good for the organization. We as senior managers don’t need to “believe” that increasing the stock price this quarter is what’s best; we’ll almost always do what we’re incented to do.

But if we want our sales team to change from, say, value selling to consultative sales, the team needs to believe in it. This is real change, not just the goal of the quarter, and we can’t incent such a fundamental change. They’ll try it, then they’ll raise hell, and we’ll either be back to value selling or we’ll have to hire an all-new sales force soon enough. Or we’ll find a way to change beliefs.

Similarly, if we want managers to meet hiring targets, we can incent them and they’ll meet the targets. But if we want to change long-term thinking about what we emphasize in hiring, we need to change beliefs about our new emphasis. Otherwise, we’ll have the same hiring challenges five or 10 years from now, because managers will invariably go back to what’s comfortable.

So how do we change beliefs? How do we usher in real, lasting change? We do it by getting our people to want to change. That means getting our own hands dirty and showing people the way. It means pulling our people to the change, listening and asking them for their ideas (to get better ideas, and to get team members who are primed for the change). It means modeling the change even when we’re under pressure to do otherwise.

So there is no silver (or gold or cash) bullet when we want to usher in real, lasting change to our organizations. We as leaders have to do the hard work—including changing ourselves—before we can ask anyone else to engage in lasting change…before we can get others to change their beliefs.

Let me know what you think…I look forward to being in touch.

Al Comeaux


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