Maintaining a healthy team is the key to a positive retention rate. On Episode 142 of Talent & Growth I had the pleasure of sitting down with Uri Gneezy, who is the Author of Mixed Signals, which is about how incentives really work in the workplace. When he’s not writing, Uri is the Professor of Economics and Strategy at the University of California in San Diego, where he studies people’s rationales and motivations. He talked me through how to make the most out of incentives, how people get them wrong and what we need to consider when we’re setting them up. Read on for the highlights of our conversation.
How do businesses send out mixed messages with their incentives?
Incentives work. There is no question about that. Instead of thinking, ‘that’s how people should react to incentives’, companies need to find out how incentives work and make sure that they design their incentives to send a clear signal, because whether we like it or not, when we design incentives, we send signals. When we send a signal, we have to make sure that it’s in line with what we actually want to get. Very often companies don’t do that, and then the results are not what they expected.
How can we really ensure that long term success is the goal of our incentives?
If the coach or manager knows that if the team fails they’re going to be fired, they’re not going to give chances to young players. They wouldn’t try new strategies. Leaders want to be remembered as a success, so the solution is to tell them that we care about the long run. For example, if I’m hiring a new CEO, I would tell them ‘We are not going to look at quarterly earnings and judge you based on that. We’re going to give you a couple of years to do whatever you want with the company, and we’re going to let you manage it for a long period of time before we decide whether we want to fire you or not.’ That way, if they looked at the company computer system and realised that the network needs an upgrade, they can invest in it without worrying about the next quarterly earnings being low. If you’re interested in long term growth you can’t micromanage quarterly performance, because these things take time.
How can businesses use incentives to get the most out of their people?
An example that I talk about in my book is when I worked with a company that did some seminars that lasted for a week, and people were promised free parking. Every day, if you had a parking ticket, you could validate it and get free parking. If you didn’t park, you got $5, which incentivised people to not drive. We contrasted this with another case, which is the regret lottery. We entered the name of everybody who attended every day, then at the end of the week, we pulled one name out. If you’d brought the car that day we’d put it aside and pull another name until we found someone who didn’t use the parking, and then gave this person $2,000. That’s an example of motivation, because using the car that day could cost them $2,000. That’s something people would regret. That was useful for getting more people to use public transportation or carpooling.
Do you think that we underestimate the value of public praise?
Praise is a relatively small fraction of incentives. It gives people social status and makes them feel good about the job they’re doing. Those are extremely important things to most people. If I want to be a good faculty member at UCSD, I’d be trying to pick up signals about what’s good. Everything I see raising other people’s status would be an incentive for me. Teaching evaluations are not going to influence my promotions, but I feel much better if the students like my class because that impacts my social standing. As employers, we need to make sure that those incentives are used in the right way.
How can businesses use incentives to help their people generate good habits?
Habits are some of the hardest things to change. If I want my kid to do well on the SATs I need to find an incentive that will make them invest in learning. That could be getting a new computer for reaching a certain grade. When you talk with educators though, what they try to do is to make people enjoy learning. How can I get someone to enjoy reading books? That’s very hard with incentives. Something that my mother did was let me read these trashy Western books. People would ask me ‘Why did she allow you to read them?’ The answer was ‘As long as he enjoys reading it, I don’t care. He will grow out of it, but he’ll still enjoy reading.’ She was right, I don’t read those trashy Western anymore, but I still read. That’s how companies need to approach incentives – they should be used to get people over the initial hurdle and into doing something productive.
To learn more about using incentives in your team, tune in to Episode 142 of Talent & Growth here.