Incentive Plans in Startups.
One of my employees did something slightly awesome yesterday. He made a good relationship with semi-popular blog and arranged to write some content for it that highlights the products that we sell. It’s a great situation all-around - great content for the other site, great for us as a business, and interesting work for the employee.
I wanted to make sure that he know his ingenuity was appreciated, so I made sure to explain to everyone at the company (we are small) what the employee did and why it was smart. I also stopped by the bank and got him $100 cash so that he could do something fun.
We occasionally reward our employees that way - with “surprise” bonuses - sometimes cash but more often a videogame or something a little more thoughtful. I felt a little weird after giving him the cash, since he was already really excited about his work in a more intrinsic way and I didn’t want to diminish his intrinsic satisfaction.
Then I read this article “Why Incentive Plans Cannot Work” -in the Harvard Business Review way back in 1993. It is highly salient to startups since, particularly those that are venture-backed, use incentives - stock options, bonuses, etc. to motivate behaviors.
Some highlights from the article:
“Research suggest, by and large, rewards succeed at securing one thing only: temporary compliance. When it comes to producing lasting change in attitudes and behavior, however, rewards, like punishments, are highly strikingly ineffective”
“In general, the more cognitive sophistication and open-thinking that was required, the worse people performed when working for a reward.”
“Jenkins tracked down 28 previously published studies that measured the impact of financial incentives on performance. His analysis ‘financial incentives’, published in 1986, revealed that 16, of 57%, of the studies found a positive effect on performance”
“Rewards have a punitive effect because they, like outright punishment, are manipulative. ‘Do this and you will get that’ is not really different from ‘do this or heres what will happen to you’ … managers are creating a workplace in which people feel controlled, not an environment conducive to exploration, learning and progress”
“Rewards, like punishment, actually undermine the intrinsic motivation that results in optimal performance”.
The content of this article really “feels” right to me, as a manager. It is also completely contrary to much of what is practiced in venture-backed startups.
