By Philip Palaveev
In every single Scooby Doo episode, eventually there comes a moment when Scooby (and Shaggy) refuse adamantly to serve as “monster-bait” but are then persuaded to follow the plan in exchange for a “scooby snack.” Every year, usually around this time, almost every single advisory firm gives out their version of scooby snacks – the annual bonuses. Those bonuses are expensive – they consume as much as 7% of the total revenues of an advisory firm. That makes them the second largest expense behind salaries and exceeds technology and rent expenses combined.
Given how expensive bonuses are I can’t help but wonder if they work? If scooby snacks can get Shaggy to walk into the cave whistling, do they have the same impact on the performance or behavior of employees?
I will jump right to the conclusion. In my experience, incentive compensation (bonuses) have very little impact on the long-term behavior of people. Bonuses will not get someone to consistently do something they are reluctant to do. What is more, over the long-term, bonuses will not only NOT increase the amount of effort a person puts into an undesirable task but may actually cause them to develop a resentment for the task and frustration with the entire organization.
It is very much my belief that:
- Bonuses, by themselves and on their own, do nothing to change the long-term behavior of the professionals.
- Bonuses are very good at rewarding and perhaps reinforcing behavior that already occurs. That in itself is a very good and legitimate use of incentive compensation.
- Bonuses can upset a lot of people – especially if they seem to fly in the face of the organizational culture and contradict prior experiences.
If you want Shaggy to go into the cave right now, you can pay him for it but if you want to turn Shaggy into a brave cave-explorer, you have to put down the Scooby snacks and try something else.
There are many examples showing that bonuses don’t change long-term behavior and I will start with an example from my own experience. I remember a client I worked with – a group of 15 advisors who worked for a large and well-known firm. The firm paid each of them a salary and those salaries ranked easily in the top 25% of the industry. The leadership of the firm, however, was dissatisfied with their business development (sales) efforts. Of the 15, only one was consistently bringing new clients to the firm. Two others had some success but rather inconsistently so. The rest simply did not contribute to bringing new clients to the firm – they just didn’t. The CEO very much believed that this could be fixed with a new bonus plan – if we pay a lot for business development then this will motivate everyone to do more of it.
The plan was implemented and two years later I had a chance to speak with the CEO about its effectiveness. The results were … well… judge for yourself… The advisor who was good at bringing new clients continued to be good at bringing new clients and now was also making a lot of money for doing that. The two advisors who were OK on the business development front continued to be OK and were quite happy with the plan. The dozen advisors who were not bringing new clients to the firm were still bringing absolutely no clients to the firm but they were now quite angry.
Changing behavior, particularly big changes usually the use of multiple tools, call them “levers.” Using only the monetary lever not only is ineffective but can be counterproductive. There are at least two other levers that should be used to create the change and those are culture and management.
Before we explore culture and management as tools, however I would really like to throw at least a couple of more rocks at the notion that incentives can change behavior in the long term. I was a smoker for almost 20 years (I started at 15 – not exaggerating). Quitting smoking is very problematic for smokers. Mark Twain jokes that “quitting smoking is the easiest thing in the world – I have done it so many times!”
The thing is that most smokers want to quit. There is not dispute or argument even amongst smokers that puffing a cigarette is bad. Surveys suggest that 70% of smokers at any given point in time want to quit but only 2% to 3% succeed in any given year. Clearly this is a very big behavioral change and this goes into the territory of addiction, dependence, biochemistry of the body and the neurochemistry of the brain. Still, perhaps so do a lot of other changes we want to see in an organization.
In 2005, researchers from the University of Pennsylvania teamed up with GE to offer financial incentives to GE employees who quit smoking. The results were remarkable. Over the course of the next year, the researchers enlisted 1,900 volunteers and paid them up to $750 in incentives structured over the course of a year and completion of abstinence milestones.
The results were very telling. First of all, the incentives improved the “quit rate” – 3 times! The money made smokers three times more likely to quit! Except for, this means that only 15% of smokers actually quit. For 85% of the participants, money made no difference at all!
What is more, in a similar program in Switzerland the researchers achieved similar results – i.e. increase success with rewards BUT also noted that the all of the effects of the program were lost once the incentives run out. The more abstinent paid-non-smokers quickly lit one as soon as the money ended.
And this is another lesson about Scooby Snacks – if you are going to use them, you better not run out!
Another great example comes from the excellent book “Drive” by Daniel Pink. In the book Pink describes and experiment from the 1940s. In it the researchers were preparing to test problem solving abilities of rhesus monkeys and placed puzzles in their cages. What they found was that the monkeys immediately took interest in the puzzles and started trying to solve them. Within two weeks the monkeys were puzzle-solving champions.
The researchers then tried “paying the monkeys” to solve the same puzzles and astonishingly the monkeys became worse at the puzzles, made more errors and started to have less interest in the puzzles. As Pink notes, for Harlow this was the moment of realization that “intrinsic motivation” as he called it trumped the materialistic payment. Then Harlow abandoned this research because it did not pay well … Just joking!
Culture is Stronger Than Money
We can only speculate why Harlow abandoned his very interesting research on intrinsic motivation but Pink perhaps gives us a clue, he writes that “Rather than battle the establishment …” This is the key for me – we all tend to do the things that the culture in which we exist tells us are the right things to do. We tend to comply with culture and this provides us with a very powerful motivation for change.
I quit smoking about 12 years ago, not because I was paid to quit but simply because the culture changed. It became increasingly socially unacceptable to smoke. More and more of the people around me were quitting smoking. More and more places were “non-smoking.” Most importantly, more and more colleagues and clients would react with open disapproval when they noted I am a smoker. I was willing to risk the cancer but not constant social disapproval. I would propose the same is true for most people in most organizations.
One of the most powerful behaviors for change is the social pressure. Most people, most of the time, tend to do what the culture around them expects them to do. The reason why 12 of 15 advisors will not develop new business is primarily because the culture of that organization tells them it is “OK” to not develop new business.
I observe the same in the small boxing gym I own and go to in Seattle. Fitness classes are a group activity where you work with a number of partners on a number of exercises. The class is one hour long and quite intense. At the end of the class you can tell it is hard because everyone’s shirt is dark and dripping with sweat. Recently though we had to cancel a class but quite a few people still showed up. The vast majority of them elected to still stay on the gym and just work out on their own.
Here is the thing – at the end of the “self-directed” class most people had left early. I took no scientific measures but less than a third of the class actually exercised for an hour. What is more, even amongst those who stayed you could visibly tell that they had not nearly exercised as hard as they would in a class. Just the shirts were not dark with sweat.
We are all perhaps not very good at motivating ourselves but we are all motivated by the expectations of others. The approval of our peers means much more than the Scooby Snack. If you have 12 advisors who do what you want them to do and three advisors who don’t, there is a lot of pressure on the three to comply. If you have only three who comply and 12 you don’t you have no chance. Perhaps an idea here is to form teams or groups so that you can team up the three performing advisors in a team with another two or three who show promise and separate them away from the others who likely will not change their behavior.
Finally, “management” can achieve a lot. Perhaps an even better word is accountability – the notion that someone is observing and noting your behavior. In fact, it is a well-known phenomenon in a gym that everyone does more push-ups when someone else is counting. That is quite important – it almost does not matter who is counting. In the gym the “counter” more or less a stranger you will likely never see again. They have no ability to reward or punish you. Still, chances are you will do at least two or three more because of that accountability factor. This is a big reason why personal trainers or even consultants are effective – the accountability to another person.
Rather than creating incentives most firms will be much better off if they simply set goals and created and accountability mechanism for tracking those goals. Yet, so many firms are very reluctant to do that. Many fear that somehow the goals will be poorly received or that the managers who are charged with accountability will be seen as the “bad guys.” So instead they choose the passive aggressive and largely ineffective way of using Scooby Snacks.
Management can go well beyond just accountability. Management can also mean training and patient development of a skill. In the case of the every-difficult business development this can mean persistent mentoring, encouragement and training. The management of a firm can be effective in helping professionals understand how to approach business development and surrounding them with resources.
After all, even in the smoking secession programs that GE paid for, the participants were not just given a check but they were asked to enroll in coaching and educational programs that helped them achieve the goal they were paid for.
What to Do with the Snacks
In my own experience spending money to change behavior is an ineffective strategy. The money can and should be spend rewarding success or sharing success rather than sending wishful messages through complex bonus programs. I very much believe that most of the time we do what we believe is right, what we believe those around us expect from us, what we were told to do. Unfortunately, we also tend to do what we have always done.
To change what someone “always does” is very difficult and we need to find a number of levers to move that giant rock. Culture and management to me are much more promising than money but perhaps if we combine all three then we really have something!
 “Paying Smokers to Quit: Does It Work? Should We Do It?” Journal of American College of Cardiology, Joseph A. Ladapo, MD, PhDa,b and Judith J. Prochaska, PhD, MPHc – https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5108450/