Leaders: What Are You Rewarding?

Leaders need to realign rewards and recognition with desired behaviors.

Since this Training issue features the annual Salary Survey results, I decided to focus this “Leading Edge” column on the power and paradox of rewards. In 1975, Steve Kerr wrote a Harvard Business Review article that has become a classic, “On the Folly of Rewarding A, While Hoping for B.” For decades, I have had college students read this article, and I have shared it with leaders at all levels to illustrate how many reward systems in a variety of industries are dysfunctional.

Kerr provides several examples of how we reward for behaviors that we want to discourage. In higher education, we want good teaching, yet research is rewarded. In healthcare, we want people to stay well, but doctors often are rewarded for treating illness. In sports, we want teamwork, but we recognize star players.

SOME INCENTIVES DRIVE BAD BEHAVIORS

James Heskett wrote a recent article for Harvard Business School’s Working Knowledge titled, “As Leaders, Why Do We Continue to Reward A, While Hoping for B?” Forty-five years after Kerr wrote his article, Heskett wants to know why things have not changed—or improved. Why are we not rewarding behaviors that we desire? Heskett writes, “We speak of the desirability of good long-term business performance, but almost all incentives—especially those imposed by markets —reward short-term performance while ignoring long-term performance.”

The culture of an organization is a compilation of behaviors, attitudes, and beliefs. We have witnessed several leaders in recognizable companies make decisions that are drastically damaging. During the financial crisis, Lehman Brothers and Bear Stearns are examples of incentives driving bad behaviors. Heskett cites Wells Fargo, where “employees were incentivized to cheat (and alienate customers) in an effort to expand and deepen customer relationships.” Enron is perhaps the best example of short-term incentives causing disastrous results.

As leaders, if you want to understand why people are behaving the way they do, examine the reward system. If you want leaders to develop other leaders, then they need to be held accountable and rewarded for doing so. Organizations allow a designated number of “sick days.” Instead, why not reward people for staying well? Are you rewarding the behaviors you want? If not, it is never too late to realign rewards and recognition with desired behaviors. Rewards are powerful. People behave in ways that are rewarded. This is a paradox worth solving.