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Irrational Incentives Undermine Morale

14 Jun 2009

First a critical examination of irrationality

There is broad swath of our society that interconnects and continues to function in large part due to rational incentives. Personal interest, social ties, and charismatic leadership drawvolunteers to an organization. Pay brings employees and freelancers to perform work for a business. Kids are encouraged to go to school ("or else") to learn vital socialization skills and gain a broad education.

Volunteer or activity teams are an excellent example of incentivized groups. From the start they are interested in the goal of the organization, socializing, and/or persuaded by good friends. Group members constantly give eachother positive feedback whenever appropriate and this incentivizes the group to continue to work together and maintain a smooth flow of productivity. Leaders of the group will make the extra effort to coordinate and push their personal contribution beyond what is expected. In turn the group and community recognizes their hard work by making known their appreciation ("atta boy").

For businesses financial incentives are used in combination with the above recognition to further propel workers to contribute their best efforts and creations. The final say of bonus and raises can be directed by many different means:

As long as there is a reasonable method to incentivize productive behavior, the organization continues to gain the trust of its membership. This all breaks down when incentives are made broad scale, or uniform.  When the incentive structure of a community decouples from extra effort and results, the organizational structure is undermined. Why should an individual work hard on a project if one receives the same reward whether or not it succeeds? Why put in the extra effort and creativity necessary to cause incredible success for the community, if the community fails to recognize these heroic activities? The very framework and fiber of the organization suffers a from a lack of trust in the whole. This drop in morale erodes away at the very ties that bind a group together. It literally whithers from the inside.

Ensure that whatever organization or communities you lead or take part in, continues to respect the necessity of rational incentives for excellent work and an enduring collaboration.

[podcast]http://www.victusspiritus.com/audio/Incentives.mp3[/podcast]