«On the Folly of Rewarding A, While Hoping for B By Steven Kerr Executive Overview This article, updated for AME, needs no introduction. Even today, ...»
2. If the worker was “above average” (normally all workers not “outstanding” were so rated):
3. If the worker committed gross acts of negligence and irresponsibility for which he or she might be discharged in many other companies: 3 percent.
Now, since the difference between the five percent theoretically attainable through hard work and the four percent attainable merely by living until the review date is small, many employees were rather indifferent to the possibility of obtaining the extra one percent reward. In addition, since the penalty for error was a loss of only one percent, employees tended to ignore the norm concerning indiscriminant payments.
However, most employees were not indifferent to a rule which stated that, should absences or latenesses total three or more in any six-month period, the entire four or five percent due at the next merit review must be forfeited. In this sense, the firm was hoping for performance, while rewarding attendance. What it got, of course, was attendance. (If the absence/lateness rule appears to the reader to be stringent, it really wasn’t. The company counted “times” rather than “days” absent, and a ten-day absence therefore counted the same as one lasting two days. A worker in danger of accumulating a third absence within six months merely had to remain ill— away from work—during a second absence until the first absence was more than six months old.
The limiting factor was that at some point salary ceases, and sickness benefits take over. This was usually sufficient to get the younger workers to return, but for those with 20 or more years’ service, the company provided sickness benefits of 90 percent of normal salary, tax-free!
Thanks to the U.S. government, even the reporting of wrongdoing has been corrupted by an incredibly incompetent reward system that calls for whistle blowing employees to collect up to thirty percent of the amount of a fraud without a stated limit. Thus prospective whistleblowers are encouraged to delay reporting a fraud, even to actively participate in its continuance, in order to run up the total and, thus, their percentage of the take.
Causes Extremely diverse instances of systems that reward behavior A although the rewarder apparently hopes for behavior B have been given. These are useful to illustrate the breadth and magnitude of the phenomenon, but the diversity increases the difficulty of determining commonalities and establishing causes. However, the following four general factors may be pertinent to an explanation of why fouled-up reward systems seem to be so prevalent.
1. Fascination with an “Objective” Criterion. Many managers seek to establish simple, quantifiable standards against which to measure and reward performance. Such efforts may be successful in highly predictable areas within an organization, but are likely to cause goal displacement when applied anywhere else.
2. Overemphasis on Highly Visible Behaviors. Difficulties often stem from the fact that some parts of the task are highly visible while other parts are not. For example, publications are easier to demonstrate than teaching, and scoring baskets and hitting home runs are more readily observable than feeding teammates and advancing base runners. Similarly, the adverse consequences of pronouncing a sick person well are more visible than those sustained by labeling a well person sick. Team-building and creativity are other examples of behaviors which may not be rewarded simply because they are hard to observe.
3. Hypocrisy. In some of the instances described the rewarder may have been getting the desired behavior, notwithstanding claims that the behavior was not desired. For example, in many jurisdictions within the U.S., judges’ campaigns are funded largely by defense attorneys, while prosecutors are legally barred from making contributions. This doesn’t do a whole lot to help judges to be “tough on crime” though, ironically, that’s what their campaigns inevitably promise.
4. Emphasis on Morality or Equity Rather than Efficiency. Sometimes consideration of other factors prevents the establishment of a system that rewards behavior desired by the rewarder. The felt obligation of many Americans to vote for one candidate or another, for example, may impair their ability to withhold support from politicians who refuse to discuss the issues. Similarly, the concern for spreading the risks and costs of wartime military service may outweigh the advantage to be obtained by committing personnel to combat until the war is over. The 1994 Clinton health plan, the Americans with Disabilities Act, and many other instances of proposed or recent governmental intervention provide outstanding examples of systems that reward inefficiency, presumably in support of some higher objective.
Altering the Reward System
Managers who complain about lack of motivation in their workers might do well to consider the possibility that the reward systems they have installed are paying off for behavior other than what they are seeking. This, in part, is what happened in Vietnam, and this is what regularly frustrates societal efforts to bring about honest politicians and civic-minded managers.
A first step for such managers might be to explore what types of behavior are currently being rewarded. Chances are excellent that these managers will be surprised by what they find—that their firms are not rewarding what they assume they are. In fact, such undesirable behavior by organizational members as they have observed may be explained largely by the reward systems in use.
This is not to say that all organizational behavior is determined by formal rewards and punishments. Certainly it is true that in the absence of formal reinforcement some soldiers will be patriotic, some players will be team oriented, and some employees will care about doing their job well. The point, however, is that in such cases the rewarder is not causing the behavior desired but is only a fortunate bystander. For an organization to act upon its members, the formal reward system should positively reinforce desired behavior, not constitute an obstacle to be overcome.
An irony about this article’s being designated a management classic is that numerous people claim to have read and enjoyed it, but I wonder whether there was much in it that they didn’t know. I believe that most readers already knew, and act on in their non-work lives, the principles that underlie this article. For example, when we tell our daughter (who is about to cut her birthday cake) that her brother will select the first piece, or inform our friends before a meal that separate checks will be brought at the end, or tell the neighbor’s boy that he will be paid five dollars for cutting the lawn after we inspect the lawn, we are making use of prospective rewards and punishments to cause other people to care about our own objectives. Organizational life may seem to be more complex, but the principles are the same.
Another irony attached to this “classic” is that it almost didn’t see the light of day. It was rejected for presentation at the Eastern Academy of Management and was only published in The Academy of Management Journal because Jack Miner, its editor at the time, broke a tie between two reviewers. Nobody denied the relevance of the content, but reviewers were quite disturbed by the tone of the manuscript, and therefore its appropriateness for an academic audience. A compromise was reached whereby I added a bit of the great academic cure-all, data (Table 1 in the original article, condensed and summarized in this update), and a copy editor strangled some of the life from my writing style. In this respect, I would like to acknowledge the extremely competent editorial work performed on this update by John Veiga and his editorial staff. I am grateful to have had the opportunity to revisit the article, and hope the reader has enjoyed it also.
Ninety percent of our respondents told us that Kerr’s folly is still prevalent in corporate America today. Over half concluded that the folly is widespread in their companies. What was true two decades ago remains so today—managers still cling to quantifiable standards when they reward others and as their primary explanation for the folly’s perniciousness.
While the historical fundamentals of the folly are still intact, some of the’ examples our panel
members provided are of recent vintage. Here is what a few of them reported:
Finally, we asked our panel members to tell us what they believed was the most formidable
obstacle in dealing with the folly. While the responses were varied, three themes emerged:
1. The inability to break out of the old ways of thinking about reward and recognition practices. In particular, there appears to be a need for new goal and target behavior definition, including non-quantifiable behavior and that which is system focused rather than job or functionally dependent. Among the deterrents to change are the entitlement mentality of workers and the reluctance of management to commit to revamping or revitalizing performance management processes and systems.
2. Lack of a holistic or overall system view of performance factors and results. To a great extent, this is still caused by organizational structures that promote optimization of sub-unit results at the expense of the total organization.
3. Continuing focus on short-term results by management and shareholders.
To say that Kerr’s folly is alive and well is an understatement. Hopefully, some future managers will hear this wake up call. Just in case they’re not listening, we’ll say it again—IT’S THE