The Incentive Continuum

Incentives are balanced between the individual and team or organization. This balance is dynamic. To ignore that fact produces risk. To assume the incentive continuum is static risks the potential of “stale” performance.

Individual Performance

The incentive continuum starts with individual performance and ends with team or organizational performance. If incentive is biased at the “individual” side of the continuum, personal agendas will likely supersede team performance. Behaviors exhibited at this location on the continuum typically produce short term results. These behaviors can be sycophantic in nature. Not all people are predisposed to such behavior, but without the appropriate guardrails – and where individual performance is incentivized – this behavior will be exhibited to one degree or another.

Team & Organizational Performance

The opposite end of the continuum is focused strictly on team or organizational performance. This may drive confusion. There must be clear and well-defined objectives for the team. Roles for each member of the team and expectations for each of those roles must be clearly defined. Without clearly defined roles and expectations, ambiguity will prevail. Individual team members, or members of the organization at large – particularly highly motivated individuals – risk becoming disenfranchised. Disenfranchisement results in being disengaged. Realization of results loses urgency and the results themselves can be as ambiguous roles and expectations without definition.

Achieving Balance

The correct balance between personal and team or organizational incentives must be identified. Balance depends on several factors, such as team and / or organizational values, objectives and business needs. Other factors may need to be considered as well.

Determining balance cannot be arbitrary. It should be a disciplined, proactive process aligned with the overall strategy of the organization. Attention should also be given to the culture of the organization. Defining balance on the incentive continuum without consideration of the culture and its capability to adopt the incentive plan may provide significant challenges.

Three Insights of Organizational Excellence

The best method to evaluate balance on the incentive continuum is to consider the Shingo Institute’s Three Insights of Organizational Excellence.

Insight No. 1: Results Require Ideal Behaviors

What are the results the organization expects from its individuals? What are the key or ideal behaviors that will produce those results? Often, this aspect of defining balance on the incentive continuum is overlooked. The results of an organization depend on the behaviors of the people within the organization. Serious examination as to behaviors should take place for all levels of the organization: Executive, Management and Associates.

Insight No. 2: Purpose and Systems Drive Behavior

Purpose is a clear and motivating driver for ideal behavior. If individual incentive (bonus, promotion, etc.) is based on personal performance, the behaviors exhibited may not align with organizational objectives. Individual purpose becomes self-serving. That purpose can be influenced to some degree by the purpose of the organization. For example, if the sole purpose of the organization is to produce a profit, individual performance will help produce a profit to the exclusion of all other relevant factors. Enron is an excellent case study in this type behavior.

Systems are structures designed to produce results. Systems are made of tools that ensure the execution of the work. A poorly designed system can encourage behaviors that ultimately produce results detrimental to the organization. The sales system established by Wells Fargo bank for its branches is an excellent example of a poor system design. It was made newsworthy when it became public that many thousands of ghost accounts were set up as a result of the incentive system. Systems are often designed without analysis of the behaviors the system may drive.

Insight No. 3: Principles Inform Ideal Behavior

The Shingo Institute defines principles as “…foundational rules that govern consequences.” A deeper understanding of principles better informs behavior. If behavior is better understood, systems are more likely to be designed to drive the behaviors that will produce ideal results.

This is a requirement for long term sustainability and viability of the organization. It helps to find the right and correct balance on the incentive continuum.

Continuous Improvement

Continuous improvement is another dimension in balancing the incentive continuum. It is a fundamental aspect of any business that chooses to survive. Continuous improvement can happen either by default (factors extrinsic and imposed upon the organization), or by design as part of the organizational strategy. Continuous improvement demands changing the benchmark aspiration – raising the bar – for the organization. This dimension, by default, demands a periodic review of the incentive continuum to determine if the prior assumption of balance is still relevant.

Forms of Incentive

It is important to be mindful that not all incentives are monetary in value. Not all are formal either. Leaders within organizations can exercise creativity for specific projects or plans, which will help drive results. The same criteria in considering such incentives should not be different than for broader organizational incentives. The appropriate balance between individual and team or organizational incentives should all be identified on the continuum.

Lessons from History

Incentives are a form of recognition. Nearly everyone wishes to be recognized for their efforts in some way. Not all want to be recognized in the same way. George Washington was keenly aware of this during the American Revolution. A highly puritanical congress believed the Continental Army should aspire to the greater good of the country and accept without complaint the worthless continental scrip they were issued. Large numbers of troops were deserting daily for the lack of “real” pay.

Washington was keen on recognizing the folly of congressional thinking. He met with many of the men who deserted upon their capture and return, desiring to learn of their motives. He promised with full intent, and the integrity known to be characteristic of him, that he would do his best to redress their grievances. His troops returned and others on the cusp of desertion remained.

These men of the Continental Army were only seeking recognition for their efforts, trials and contributions. They wanted to be validated as individuals, as soldiers, as human beings. They also needed to work as a team. Through the instrumental skill of Baron von Steuben, Washington was able to instill pride in his troops – a sort of recognition, if you will – as an army that would become a force to be reckoned with, a team. Their performance as such was validated many times over after the experience of Valley Forge.

Balance Revisited

Incentives must exist. To be effective a balance must be found on the incentive continuum somewhere between individual and organizational incentive. Incentives must be appropriate to the objectives and require ongoing evaluation so they do not become stale. All relevant factors must be considered when developing an incentive program in order to produce behaviors that will then deliver ideal (sustainable) results.

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