In a great speech from TED global 2009, Daniel Pink discusses the issue of motivation and incentives.
See the speech here:
Pink describes the “candle problem” as a classic model of when incentives work and when they actually hinder innovation. This is a situation where the subject is asked to solve a situation and the solution is not immediately evident.
When the candle problem is explained simply, incentives to the subjects drastically improve the results. And when the problem is more complex, Pink explains, incentives actually hurt innovation and produce negative results.
A clear example of this phenomenon often happens in quarterly or semi-annual performance reviews. Because the objectives the employee tries to achieve are often vague or unknowable (improve the “x” process), having these incentives in place encourages the employee to pick safe alternatives that will guarantee reaching the incentive.
How can you break out of this cycle? First, pick the smallest big goal that you can quantify. Base the incentive on something that you know matters to the process (e.g. engaging customers) and free the employee to try new things (and be responsible).
Second, ask employees how they want to be motivated and align their incentives with company goals. Each area of the company can contribute to making money, increasing customer loyalty, or just answering questions in a consistent way. Just make sure you set at least one numeric, measurable goal, tracking progress against this goal daily or weekly.
Finally, don’t be afraid to scrap a goal and rethink it if it’s not working. Even the most engaged and best-performing employees might change their minds. Iterating through this process will help you to solve the difficult “candle problems” in your business.