Rethinking Rewards

Perspectives

Harvard Business Review

Reprint 93610

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 HarvardBusinessReview
NOVEMBER-DECEMBER 1993

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TRACY GOSS, RICHARD PASCALE, THE REINVENTION ROLLER COASTER: 93603

AND ANTHONY ATHOS RISKING THE PRESENT FOR A POWERFUL FUTURE

JEANIE DANIEL DUCK MANAGING CHANGE: THE ART OF BALANCING 93602

GENE HALL, JIM ROSENTHAL, HOW TO MAKE REENGINEERING REALLY WORK 93604
AND JUDY WADE

STEVEN E. PROKESCH MASTERING CHAOS AT THE HIGH-TECH FRONTIER: 93609

AN INTERVIEW WITH SILICON GRAPHICS’S ED McCRACKEN

DAVID BIDDLE RECYCLING FOR PROFIT: 93601

THE NEW GREEN BUSINESS FRONTIER

SHINTARO HORI FIXING JAPAN’S WHITE-COLLAR ECONOMY: 93605

A PERSONAL VIEW

REGINA FAZIO MARUCA HBR CASE STUDY

AND AMY L. HALLIDAY WHEN NEW PRODUCTS AND CUSTOMER LOYALTY COLLIDE 93608

PERSPECTIVES
RETHINKING REWARDS 93610

IN QUESTION
MICHAEL S. KIMMEL WHAT DO MEN WANT? 93606

WORLD VIEW
SAM PITRODA DEVELOPMENT, DEMOCRACY, AND THE VILLAGE TELEPHONE 93611

FIRST PERSON
ROGER MARTIN CHANGING THE MIND OF THE CORPORATION 93607

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 P E R S P E C T I V E S

What role – if any – should incentives play in the workplace?

Rethinking Rewards

It is difficult to overstate the ex- ing to numerous studies in labora- Kohn, incentives in the workplace
tent to which most managers – and tories, workplaces, classrooms, and simply can’t work.
the people who advise them – be- other settings, rewards typically un- Nine experts consider the role of
lieve in the redemptive power of dermine the very processes they are rewards in the workplace.
rewards, Alfie Kohn argues in “Why intended to enhance. In Kohn’s
Incentive Plans Cannot Work” view, the findings suggest that the G. Bennett Stewart III
(September-October 1993). Certain- failure of any given incentive pro- Senior Partner
ly, the vast majority of U.S. corpora- gram is due less to a glitch in that Stern Stewart & Co.
tions use some sort of program in- program than to the inadequacy of New York, New York
tended to motivate employees by the psychological assumptions that
tying compensation to one index of ground all such plans. A world without A’s, praise, gold
performance or another. But more Do rewards work? The answer de- stars, or incentives? No thank you,
striking is the rarely examined belief pends on what we mean by “work.” Mr. Kohn. Communism was tried,
that people will do a better job if Research suggests that, by and large, and it didn’t work.
they have been promised some sort rewards succeed at securing one The Soviet and Chinese econo-
of incentive. thing only: temporary compliance. mies collapsed because people were
This assumption and the practices They do not create an enduring com- not allowed to share in the fruits of
associated with it are pervasive, but mitment to any value or action. their individual efforts. With gains
a growing collection of evidence They merely, and temporarily, from personal initiative harvested as
supports an opposing view. Accord- change what we do. According to a public good, innovation ceased,

PHOTO BY TONY RINALDO Copyright Q 1993 by the President and Fellows of Harvard College. All rights reserved.
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 P E R S P E C T I V E S

and productivity froze. “They pre- incentives: to improve profitability, and quality at a time when their re-
tend to pay us, and we pretend to to grow profitability, and to with- sources are severely limited. Fid-
work” was the Russian worker’s draw resources from uneconomic ac- dling with compensation schemes
lament for the system Kohn now tivities. In addition, it ties their deci- appeals to many managers as a cheap
proposes. But for pay to mean any- sions and energies directly to the way to improve their companies’
thing, it must be linked to per- “net present value” of their enter- performance by providing individu-
formance. Without that link, pay prise. All key managers at Quaker als with incentives to work harder.
becomes nothing more than enti- Oats have been on an EVA sharing In fact, reliance on individual incen-
tlement, a job nothing more than plan for several years, and Scott tives to motivate workers and spur
a sinecure. Paper Company introduced an EVA productivity has a long history in
Kohn is unhappy that rewarding incentive program for all salaried the United States. The U.S. human-
some people necessitates penaliz- employees at the beginning of 1993, resource model evolved in the 1950s
ing others. Winston Churchill’s apt to name but 2 of the 50 prominent partly in response to then-current
aphorism is the best response. He companies that have adopted this theories of industrial psychology. By
said, “The virtue of communism is approach in recent years. designing compensation schemes
the equal sharing of its misery, and that recognize and reward individual
the vice of capitalism is the unequal Eileen Appelbaum differences, companies expected to
sharing of its blessings.” You can’t Associate Research Director reap the rewards of increased em-
have it both ways, Mr. Kohn. You Economic Policy Institute ployee motivation and improved job
simply can’t have the equality of Washington, D.C. performance. This idea continues to
outcome you desire with the robust, inform present managerial thinking.
dynamic economy we all want. Companies today are under in- In his article “Why Incentive Plans
Contrary to the small-sample psy- tense pressure to improve efficiency Cannot Work,” Alfie Kohn has per-
chology tests Kohn cites, the respon- formed an important service by mar-
siveness of ordinary citizens to in- shaling the modern evidence on the
centives is demonstrated daily in psychological effects of incentives
our economy. Consumers cut con- and by showing that rewards fail
sumption in reaction to the “penal- to improve, and may even reduce,
ty” of a price increase and raise pur- performance.
chases in reaction to the “bribe” of We are still left, however, with
a lower price. The price system effi- questions about what improves a
ciently allocates scarce resources company’s performance and what
precisely because it rewards people role compensation actually plays in
who conserve and penalizes those that improvement. I would offer the
who fail to respond. Can it be true, following answers, based on an anal-
as Kohn seems to think, that people “A world ysis of nearly 200 academic case
respond to monetary incentives studies and consultants’ reports, car-
when they spend their income but without A’s, ried out with Rosemary Batt – a doc-
not when they earn it? toral candidate in labor relations and
If Kohn makes a useful point, it is
when he says that people won’t want
praise, gold human-resource policy at MIT’s
Sloan School of Management – and
to be paid for doing specific tasks.
But here is where we disagree: peo-
stars, or published in The New American
Workplace, forthcoming from the
ple should be rewarded for an overall
job done well. To put the point in
incentives? ILR Press in 1994.
In the early part of the twentieth
economic terms, the best incentive
is having a piece of the action. Com- No thank you, century, workplace innovations at-
tempted to improve employee satis-
pany stock, however, is not the best faction and, at the same time, com-
approach to instilling ownership, for Mr. Kohn. pany performance. In contrast, the
it frequently leaves too loose a link move to high-performance work sys-
between pay and performance. Communism tems since the mid-1980s is moti-
The best approach often is to carve vated by the need to improve quality
employees into a share of the profit
contributed by their part of the com-
was tried, and reduce costs simultaneously. In
the mass-production model of work
pany. Profit should be defined in rel-
evant cash-flow terms after covering
and it didn’t organization, whether the Taylorist
or the U.S. HR version, improving
the cost of all capital employed, a
measure that Stern Stewart & Co. work.” quality raises costs – for inspection,
supervision, rework, and waste. It
calls Economic Value Added. EVA was quite a shock to U.S. sensibili-
provides employees with three clear G. Bennett Stewart III ties, therefore, when Japanese auto

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 P E R S P E C T I V E S

manufacturers demonstrated that vation and organizational effective- zational problems, when there are
new ways of organizing work could ness. But because certain practical actually deeper underlying reasons
deliver noticeably higher quality and considerations and cultural differ- for those problems.
customer satisfaction at signifi- ences are not addressed, the argu- Managers tend to use compensa-
cantly lower prices. It took nearly a ment is flawed. tion as a crutch. After all, it is far
decade for companies in the United Like Kohn, I have found that many easier to design an incentive system
States to realize that they would managers in the United States and that will do management’s work
have to change. the United Kingdom – but not, inci- than it is to articulate a direction
Our review of the evidence indi- dentally, in continental Europe or persuasively, develop agreement
cates an acceleration of experimen- Japan – have deeply held assump- about goals and problems, and con-
tation with innovative workplace tions about the role of incentive pay front difficulties when they arise.
practices and the emergence since in motivation. These assumptions The half-life of an incentive system
the mid-1980s of two distinctly lead them to engage compensation is at best five years. When it stops
American high-performance mod- consultants in answering the wrong paying off, employees turn against
els: a U.S. version of lean production question: How should we design the it. And the result is another dysfunc-
that relies on employee involvement incentive system in order to obtain tional by-product of incentive sys-
and a U.S. version of team produc- the desired behavior? The more im- tems: precious attention, time, and
tion that relies on employee empow- portant question is: What role, if money is expended on endless de-
erment for performance gains. Pro- any, should incentive compensation bates about and redesigns of the in-
ductivity and performance improve play? Like Kohn, I have found that centive system.
the most when work is reorganized assumptions about incentive com- If incentive systems do not mo-
so that employees have the training, pensation have led many managers tivate, what should managers do
opportunity, and authority to partic- to expect incentives to solve organi- about compensation? Surely, Kohn
ipate effectively in decision making; would not suggest that everyone
when they have assurances that they should be paid the same. In some
will not be punished for expressing industries or functions – sales, for
unpopular ideas; when they realize example – incentive compensation
that they will not lose their jobs as a is the prevailing practice. In these
result of contributing their knowl- areas, without paying for perfor-
edge to improve productivity; and mance, an organization will lose its
when they know that they will re-
ceive a fair share of any performance
“If incentive best people. Yet by paying for perfor-
mance, the company runs the dan-
gains, assurances which unionized
workers in high-performance com- systems do not ger of encouraging self-interest in-
stead of organizational commitment.
panies enjoy. This is a fundamental pay-for-per-
Attempts to improve performance motivate, what formance dilemma that practicing
by manipulating compensation managers confront and that Kohn
packages have proven counterpro- should neglects to address.
ductive. However, reorganizing the It is undoubtedly true that in to-
work process to capitalize on em-
ployee skills and participation has
managers do day’s competitive environment, in-
terdependence between different
improved performance, especially in
combination with employment se-
about business units and functions as well
as the need for customer service and
curity, gainsharing, and incentives
to take part in training. In this sense,
compensation? quality make incentive compensa-
tion less appropriate than it once
then, compensation packages are an
important component of the human- Surely, Kohn was. But there are circumstances in
which it is the only solution avail-
resource practices that are neces- able: for example, managers of inde-
sary to support high-performance would not pendent stores far from headquar-
work systems. ters who don’t have a motivating
suggest that manager-subordinate relationship or
salespeople whose performance is
Michael Beer
Professor of Business
Administration
everyone independent of other business units
and who operate without supervision
Harvard Business School
Boston, Massachusetts
should be paid much of the time.
Managers who agree with Kohn

Kohn has mounted an eloquent ar- the same.” should pay for performance but
strive to use incentive systems as lit-
gument, when it is considered in tle as possible. Pay is an exercise in
light of what we know about moti- Michael Beer
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 “Intrinsic
smoke and mirrors. Companies can-
not stop paying for performance. motivation – same. Senior managers will end fi-
nancial incentives only when they
However, they should avoid using rethink what work is and how it is
incentives for all the reasons that being performed. Organizations that have
Kohn suggests. redesigned work to reflect cross-
What can managers do? They motivated by functional business processes or
should focus on paying people equi- those that have implemented the
tably, rather than using pay as an
instrument of motivation. They
challenge and actual principles of TQM have had
to rethink pay and performance.
should avoid coupling pay with year-
ly or quarterly performance, while
enjoyment – is Employees have said, “Give us the
tools, the skills, the information, the
promoting the top 10% or 15% of
employees for outstanding long- essential to support, and the respect we need.”
In different words, “Give us real
term contributions. The poorest capital, intellectual capital, and
performers should be weeded out, creativity. But symbolic capital, and we’ll increase
while the rest should be praised for your – and our – financial capital.”
good performance and recognized extrinsic Money is an outcome of high per-
through other means to promote formance. Satisfaction and respect
self-esteem.
We are indebted to Kohn for ring-
motivation – are incentives to it.

ing the alar m, but he does not

provide managers with creative,
being Teresa M. Amabile
Professor of Psychology
practical solutions to the pay-for-
performance dilemma.
motivated by Brandeis University
Waltham, Massachusetts

Andrew M. Lebby recognition and Kohn is absolutely right when he

Senior Partner tells us that rewards can work
The Performance Group money – doesn’t against real commitment and cre-
Washington, D.C. ativity. But he doesn’t tell the whole
necessarily story. There are important differ-
The effect of rewards on motiva- ences between bribes and equitable
tion and performance is one of the
most studied subjects in the man-
hurt.” compensation, and there are condi-
tions under which rewards can in-
agement literature. Year after year crease involvement and creativity.
we validate the finding that employ-
Teresa M. Amabile What matters is what those rewards
ees’ perceptions of underpay result actually mean.
in decreased productivity, while in- As Kohn points out, there is abun-
creased pay doesn’t result in in- self from what the recipient finds dant evidence that interest and per-
creased productivity. Year after year rewarding, some possible answers formance decline over the long run
we ask employees what motivates appear. When we ask employees, when people feel they are controlled
them, and year after year they reply: “What was the last reward you re- by incentive systems or any other
a sense of accomplishment in per- ceived?” the most frequent response management system. What Kohn
forming the work itself, recognition is some variant of “money.” When fails to point out is that people do
from peers and top management, ca- we ask, “What did you find reward- not always feel controlled by re-
reer advancement, management ing about money?” the most fre- wards. In a recent study of profes-
support, and, only then, salary. quent response is that it was a tacit sional artists, my students and I
If Kohn is unable to find data that acknowledgment of the outstanding found, as Kohn would have predict-
support anything but a negative rela- nature of their contribution. Just as ed, that noncommissioned works
tionship between financial incen- it is easier for some parents to show were more creative than commis-
tives and performance, why is it that love with gifts than with hugs, it is sioned works. However, what mat-
in the face of overwhelming evi- often easier for organizations and tered was not the obvious fact of
dence executives continue to hold managers to show gratitude with contracting for reward, but the de-
onto ineffective methods? Why is it money than with words. gree to which the artist felt con-
that they refuse to provide those Our current notions of pay follow strained by the terms of the commis-
things that employees say they naturally from our antiquated, Tay- sion: the more constraints, the lower
want, that directly relate to in- lorist, mechanistic models for de- the creativity. In fact, some artists
creased productivity, and that have signing work. The work we do and considered some of their commis-
little or no financial cost? how we do it have shifted signifi- sions enabling, allowing them to
When we stop to separate the cantly, but our reward and salary create an interesting work of art that
physical nature of the reward it- structures remain essentially the they wouldn’t otherwise have had

6 HARVARD BUSINESS REVIEW November-December 1993

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 the means to do. When the reward hell to earn money and fame and
presented the artist with new possi- bring the stars all down.”
bilities, in other words, creativity
actually increased. “Appropriate Jerry McAdams
Intrinsic motivation – being moti- Vice President, Performance
vated by challenge and enjoyment – rewards for Improvement Resources
is essential to creativity. But extrin- Maritz Inc.
sic motivation – being motivated by
recognition and money – doesn’t nec-
improved Director
Consortium for Alternative Reward
essarily hurt. The most creative
artists in our study tended to be mo-
performance Strategies Research
St. Louis, Missouri
tivated more by challenge, but they
also tended to be motivated by
have always A few years ago, Kohn did the
recognition. Kohn accurately docu-
ments the evidence that rewards can made good business community a service with
his book, No Contest: The Case
undermine creativity. But he fails to Against Competition, which argues
mention the evidence that tangible sense, that competition is for the market-
rewards can actually enhance cre- place rather than the workplace.
ativity under certain circumstances, intuitively and The book makes a compelling ar-
most notably when the individual’s gument for focusing on teamwork
primary focus is on the intrinsic re-
ward of the work itself.
practically. instead of pitting one employee
against another. The key to success,
Bribes, as Kohn frequently notes,
are bound to make people feel con-
They aren’t Kohn maintains, is to create an at-
mosphere of cooperation, channel-
trolled, and he rightly points out
their negative effect on people’s wrong. ing employees’ creativity and energy
to affect the business objectives of
work. But he implicitly includes the organization positively. Compe-
salary in the same category as bribes They aren’t tition between individuals, on the
when he argues that “pay is not other hand, only gets in the way.
a motivator.” Certainly, there are intrinsically Now Kohn argues that rewards get
some circumstances under which in the way as well. On the basis of
salary increases are perceived as
bribes. A few years ago, for example,
demotivating.” my 20 years of researching and de-
signing reward plans for sales and
I interviewed an R&D scientist who Jerry McAdams nonsales employees, I disagree. Ap-
was widely considered to be one of propriate rewards for improved per-
the three most important innovators formance have always made good
in a large, successful company; he sense, intuitively and practically.
was also considered extremely ec- can be said about redesigning work They aren't wrong. They aren't in-
centric. “They offered me a pretty and the work environment so that trinsically demotivating. Data show
large salary increase this year, but extrinsic motivators become less they make good business sense.
I refused it,” he recounted. “Right central. Managers need to know how Of course, there is always a mar-
now, my lab is my playground; I to use these alternative techniques ket for speeches, books, and articles
pretty much come in here and do before they can be expected to aban- that profess, through highly selec-
things the way I want. But the more don the incentive systems on which tive academic research, that what is
they pay you, the more they think they have relied for so long. working really isn’t. Kohn’s article is
they own you.” If Kohn can convince even a few a provocative exercise in attention-
A much more common reaction, managers that incentive plans are getting, niche marketing. Unfortu-
however, was the feeling expressed not the keys to innovative, high- nately, Kohn’s article will probably
by other scientists that their salary quality performance, he will have be used by some to deny perfor-
increases recognized their creative made a significant contribution. But mance-improvement opportunities.
contributions. Generous compensa- it would be a mistake to believe that I do agree with Kohn’s point re-
tion, including companywide profit reward and recognition must always garding the negative aspects of the
sharing, need not be seen as a bribe, have a negative effect on perfor- reinforcement of tasks, particularly
particularly when it is presented as mance or that creative people can- when the reinforcement plan is
the equitable outcome of creative not be motivated by both money and piece-rate or merit-pay based. Mea-
competence. interest in the work itself. As the suring and rewarding on an individu-
Although Kohn’s article is clear poet Anne Sexton once said, “I am in al level (sales excepted) does tend
about what managers should avoid, love with money, so don’t be mistak- to become controlling. The focus
it has little to say about alternatives en. But first I want to write good should be on business objectives,
to incentives. There is much that poems. After that, I am anxious as not tasks. The study, Capitalizing

HARVARD BUSINESS REVIEW November-December 1993 7

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 P E R S P E C T I V E S

on Human Assets, covering one-mil- plans cannot work defies the laws of those of our shareholders. The basic
lion employees and 432 compensa- nature at Tyco Laboratories. Tyco rule is this: the more the executives
tion plans and sponsored by the non- provides a compelling case study earn for the shareholders, the more
profit Consortium for Alternative that incentives can and do work for they earn for themselves.
Reward Strategies Research (CARS), both managers and shareholders. In Tyco’s 250 profit centers fall into
shows that rewarding groups of em- fact, we believe our incentive com- four major businesses. Within the
ployees, usually whole plants and of- pensation program is at the heart of context of a few corporate financial
fices, is a powerful business strategy. our company’s success. controls, we tell each profit-center
According to the study, this strat- We view the relationship between manager to run the business as if he
egy pays off a median three-to-one Tyco’s management and its share- or she owned it. A decentralized ap-
return on the cost of the rewards. holders as very straightforward: proach lets us put the financial re-
Employees earn from 2% to 15% of management works for the share- sources of a $3-billion corporation
their base pay in incentives or non- holders. It is our mission to create behind the entrepreneurial spirit,
cash awards. No layoffs appear to value for them through stock-price drive, and resourcefulness of man-
result from the improved perfor- appreciation. In fact, our share price agers who think and act like owners.
mance. Interviews and extensive da- has closely tracked our earnings It’s the best of both worlds. Profit-
ta analysis of the 432 plans show curve for many years, lending con- center autonomy and responsibility
positive employee-management co- siderable weight to our determina- go hand in hand. We encourage each
operation and improved information tion to encourage earnings growth in unit’s management team to share
sharing and employee involvement. a prudent and consistent manner. the unit’s profits. The more profits
Rewards are not bribes. Bribes are Our compensation program, in turn, the business unit earns for the share-
payments for behavior that may be was designed to align the financial holders, the more compensation the
in the organization’s best interest interests of our executives with management team earns for itself.
but are clearly not in the individ- Our incentive plan has several im-
ual’s. Rewards reinforce a “win- portant and unique features. For one,
win” environment. The objective of incentive compensation is directly
a reward plan is not to “control or tied to each business unit’s perfor-
manipulate,” as Kohn contends. It is mance and not to corporate results
to provide focus and reward im- or other factors beyond any individ-
proved performance. “I’ll accept that ual’s control. In addition, the awards
Tom Peters was right when he are not based on how units perform
wrote about Kohn’s thesis, “What
we need is a lot more positive rein-
elephants against a budget or any other preset
goal. Instead, awards constitute a
forcement, and a lot less of the nega-
tive kind, throughout the corporate
cannot fly and preestablished percentage of earn-
ings. Since we adopted this ap-
landscape. And far from cautioning
companies about the dangers of in- that fish cannot proach, the quality of the budgeting
process has substantially improved.
centives, we should be applauding Finally, award opportunities are un-
those that offer their employees a walk, but capped, and, as a result, they encour-
bigger piece of the action” (INC, age the entrepreneurial spirit that
April 1988). The CARS research has Kohn’s we value.
done just that, looking at more plans When designed effectively and
in greater depth than any other
study. The bottom line is simple:
argument that integrated thoroughly into the man-
agement process, executive incen-
reward plans work when properly de-
signed and supported; there can be
incentive plans tive programs work well for manage-
ment and shareholders alike.
something in it for everyone.
I think it is time to focus on the
cannot work George P. Baker III
productive use of people as assets to
business not on the counterproduc- defies the laws Associate Professor
Harvard Business School
tive theories in Kohn’s article. Boston, Massachusetts
of nature at
L. Dennis Kozlowski The problem is not that incentives
Chairman and CEO Tyco can’t work but that they work all too
Tyco Laboratories, Inc. well. Kohn’s analysis of the unin-
Exeter, New Hampshire Laboratories.” tended and unwanted side effects of
many incentive plans is perfectly
I’ll accept that elephants cannot apt; plans that provide incentives for
fly and that fish cannot walk, but
L. Dennis Kozlowski the wrong behavior will produce the
Kohn’s argument that incentive wrong results. However, Kohn’s so-

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 P E R S P E C T I V E S

lution to abandon incentive plans sired results are likely to stimulate tives if they are to be flexible, inno-
entirely is misguided. Rather, man- innovation. vative, and directed.
agers must learn how to harness and Perhaps the most disturbing omis-
use the power of incentives to drive sion from Kohn’s article is his failure Donita S. Wolters
individual motivation and organiza- to suggest an alternative to the use Manager of Human Resources
tional effectiveness. of incentive plans. If companies are JMM Operational Services, Inc.
In several places, Kohn’s asser- to abandon extrinsic incentives as a Denver, Colorado
tions about the weakness of incen- way to motivate employees, what
tive plans only serve to highlight the are they to use instead? Is Kohn rec- While Kohn makes a number of
power of such plans to influence be- ommending that we live with the valid points with respect to the dan-
havior. What Kohn says is absolute- loss of individual motivation and gers of incentive plans, his summary
ly true: if teamwork and cooperation lack of organizational innovation execution of incentives is unwar-
are desired, and the incentive plan and flexibility that characterizes ranted. Incentives are neither all
rewards only individual results, then companies and societies without ex- good nor all bad. Although not the
the plan will generate counterpro- trinsic incentives? Without some right answer in all cases, they can be
ductive results. However, a well-de- level of extrinsic incentive to sup- highly effective motivational tools
signed incentive plan that rewards plement the intrinsic drive of indi- and should be employed under the
team productivity not only will viduals, organizations become un- appropriate circumstances.
avoid such unproductive behavior wieldy and inflexible. As a general Without a doubt, financial re-
but also will induce employee coop- prescription for the management of wards can be, and have been, both
eration. This is the logical basis for organizations, Kohn’s approach is overused and misused. Implement-
the majority of profit-sharing and naive and utopian. In the real world, ing a poorly designed or ill-suited
employee stock-ownership plans, organizations must manage incen- incentive plan can do more harm
whose effectiveness mounting evi- than good because employees will
dence supports. inevitably receive mixed, even con-
Similarly, Kohn’s observation that flicting, messages from the organiza-
incentive plans cause employees to tion about its values and priorities,
curry favor with the boss and with- leading to confusion and frustration.
hold information about poor perfor- Incentives are no substitute for good
mance is often accurate. But the so- management and should not be used
lution is not to eliminate the boss’s indiscriminately to remedy prob-
ability to reward employees. Instead, lems when more effective solutions
supervisors should be trained to ig- exist. Kohn mentions training and
nore or punish politicking. It is pre-
cisely because incentives are so
“Incentives are goal setting as examples of effec-
tive strategies for improving produc-
powerful that Kohn can predict that
if managers reward politicking, poli- neither all good tivity, and his advice is well-taken.
Incentives cannot improve perfor-
ticking will result. mance if employees are not properly
Reward plans need not be control- nor all bad. trained to perform their tasks or
ling, as Kohn seems to imply. Con- have no idea what is expected of
sider the store-manager incentive Although not them. But something more is of-
plan at Au Bon Pain. Store managers ten needed to elicit the necessary
are given a profitability target and
are allowed to keep a substantial
the right effort. The job-rate pay systems that
typify unionized blue-collar environ-
fraction of any profits they earn
above this target. The chain puts few
answer in all ments – where mediocrity and lack
of innovation are the hallmarks,
constraints on how they achieve or
exceed their targets. The plan has
cases, they can and employees do just enough to
get by – illustrate the point.
hardly been “the enemy of explo-
ration.” Rather, it has resulted in an be highly I have observed, as a veteran of
many employee-counseling ses-
explosion of entrepreneurial experi- sions, that employees are more apt
mentation and innovation. Notice, effective to become disillusioned with incen-
however, that the Au Bon Pain plan tive plans when they feel exploited
is not, in Kohn’s words, “contingent motivational because the expected rewards are
on behavior.” It is contingent on re- not forthcoming, not when they are
sults, and herein lies the crucial dif-
ference. Plans that are contingent on
tools.” rewarded for something they were
inclined to do in the first place. To
behavior will encourage the pre- avoid perceptions of exploitation
scribed behavior and stifle initia-
Donita S. Wolters and manipulation, however, two de-
tion. However, plans that reward de-

9
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 P E R S P E C T I V E S

sign features of the incentive pro- processes, such as a supervisor’s in- the balance of fairness will be upset.
gram are imperative. dividual opinion. Kohn seems to Insufficient attention to these dy-
First, the criteria for and the actual support this view when he states namics may underlie the apparent
evaluation of performance must be that “not receiving a reward one had failure of many executive incentive
seen as objective and within the per- expected to receive is…indistin- plans, which could more accurately
former’s control. This means that guishable from being punished.” be termed entitlement programs.
anyone should be able to predict the Second, the recipient should con- Kohn goes on to decry the inabili-
reward consistently and reliably sider the reward equal to the effort ty of incentives to “create an endur-
based on given actions and results. that produced it. Too insignificant ing commitment to any value or ac-
The reward should not be deter- and the incentive will be insulting tion.” I question the relevance of
mined through highly subjective and thus ineffective; overdone and this criticism. The purpose of incen-

Alfie Kohn Responds:

The average U.S. company has Donita Wolters would have it, or for-performance in particular.
come to resemble a game show: that they are offered “for the Neither can produce quality, but
“Tell our employees about the wrong behavior,” as George Baker only the latter is positively harm-
fabulous prizes we have for them claims. But I believe incentive ful. I agree with Amabile that
if their productivity improves!” plans must fail, because they are “generous compensation...need
None of my respondents doubts based on a patently inadequate not be seen as a bribe,” but I dis-
the pervasiveness of this men- theory of motivation. Trying to agree that “people do not always
tality. In fact, several profess undo the damage by adopting a feel controlled by rewards.”
incredulity that anyone would new pay-for-performance scheme Richard Ryan and his colleagues
question the value of dangling is rather like trying to cure alco- at the University of Rochester, pi-
rewards in front of people. In my holism by switching from vodka oneers in researching this ques-
experience, this reaction most to gin. This argument makes a lot tion, have concluded that “re-
often comes from the consultants of people angry, as seems clear wards in general appear to have a
who make their living selling - from Jerry McAdam’s unpleasant controlling significance to some
incentive programs. What I hear speculations about my ulterior extent and thus in general run the
around the country from people
with no axe to grind is a frank
acknowledgment that incentive
plans rarely work.
Consider the following:
M A human-resource executive at
a major U.S. auto company re-
cently surveyed her colleagues in
various industries; they told her
that, at best, their incentive plans
didn’t do too much damage.
M Training Magazine ran a cover
story in August: “Why No One motives and from the amusing, if risk of undermining intrinsic mo-
Likes Your Incentive Program.” predictable, mutterings about tivation.” Offering good things to
M As Michael Beer observes, pay- communism by G. Bennett Stew- people on the condition that they
for-performance programs are art. If the attachment to carrot- do what you tell them is, almost
typically tossed out a few years and-stick psychology – or any by definition, a way of trying to
after they are begun. dogma – is deep enough, ques- exert control.
M To the best of my knowledge, tioning simply isn’t permitted. But even someone who insists
no controlled study has ever W. Edwards Deming, and oth- that it’s possible in theory to de-
found long-term improvement in ers before him, have been telling vise a noncontrolling reward has
the quality of performance as a us for years that money is not a to concede that control is what
result of extrinsic rewards. motivator. Judging from Teresa incentive plans in the real world
Of course, it is comforting to Amabile’s response, however, I are all about. Just listen to the de-
believe that incentives fail on- may not have been clear enough fenders of these programs: the
ly for incidental reasons, such about the difference between whole idea is to “direct [employ-
as that they are “misused,” as compensation in general and pay- ees’] behavior,” as Wolters says.

10 DRAWING BY MARK STEELE

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 P E R S P E C T I V E S

tives is not to change employees’ The current trend in organizations ganizational and individual goals by
values but to direct their behavior in is toward less hierarchy and more treating employees as partners in
ways that will benefit the organiza- teamwork. For employees, this both the risks and the successes of
tion and the employees themselves. means that fewer promotions are the business. Kohn recognizes that
More telling is Kohn’s failure to available and greater cooperation the majority of companies in the
identify a viable alternative to in- among coworkers is required. For United States utilize some sort of in-
centives. Of course, the intrinsic re- employers, this means that maxi- centive plan. Indeed, his assertions
wards he praises are extremely moti- mum versatility and productivity are being tested on the firing line and
vating where they happen to exist, must be summoned from all mem- disproved by a persuasive cross sec-
but they are not always present and bers. The use of incentive plans rep- tion of U.S. business.
cannot usually be created. resents one strategy for aligning or- Reprint 93610

“I believe incentive plans must fail.”

No wonder the evidence shows behavior. Rather, the use of re- pensation over another: for exam-
that incentives do not “supple- wards and the extrinsic orienta- ple, need, seniority, job responsi-
ment the intrinsic drive of indi- tion they produce inexorably lead bilities, training, market value.
viduals,” as Baker believes, but people to focus on pleasing those My concern is primarily to con-
tend to supplant it. As a rule, the in charge of handing out the good- vince managers to stop manipu-
more salient the extrinsic moti- ies. Fine-tuning the incentive lating employees with rewards
vator, the more intrinsic motiva- plan cannot solve the problem. and punishments and to stop
tion evaporates. Finally, a number of correspon- pushing money into their faces.
One could say, as Baker does, dents are understandably curious My other concern is to empha-
that incentives work too well, in about my views on what should size the futility of fiddling with
the sense that they are destruc- replace incentive plans. If a dis- compensation schemes. This is
tive of excellence and interest. cussion on this point was con- not the road to quality. Andrew
But one cannot conclude from spicuously absent from the arti- Lebby, a consultant, and Eileen
this that the problem is merely cle, which was an excerpt from Appelbaum, a researcher, corrob-
one of implementation. Baker my book Punished by Rewards, it orate this, and each offers a way
of thinking about where excel-
lence actually comes from. I find
it useful to think in terms of three
C’s: choice, collaboration, and
content. Choice means that em-
ployees should be able to partic-
ipate in making decisions about
what they do every day. Collabo-
ration denotes the need to struc-
ture teams in order to facilitate an
exchange of ideas and a climate of
support. Content refers to what
errs in assuming that just because was due to limited space. I do people are asked to do: as Freder-
rewards undermine cooperation grapple at length with alterna- ick Herzberg said, “If you want
it follows that they can also cre- tives to incentives in another people motivated to do a good job,
ate it. If something has the power chapter, “Thank God It’s Mon- give them a good job to do.”
to hurt, that doesn’t mean more day.” Here, a few words will have An organization that provides
of it will motivate. Again, think to suffice. these three ingredients in place of
of money: less of it can demoti- On compensation, my advice is artificial inducements like incen-
vate, but that doesn’t mean that this: pay people well and fairly, tive plans will not “lose its best
more of it will motivate. I think then do everything possible to people,” as Beer worries. Inno-
Baker also misunderstands why help them forget about money. I vation and excellence are the
employees try so hard to con- have no objection to profit-shar- natural results of helping people
vince their reward-dispensing su- ing: it seems sensible enough that experience intrinsic motivation.
pervisors that everything is under the people who made the profit But intrinsic motivation cannot
control. It’s not because the latter ought to have it. Nor am I keen to survive in an organization that
are deliberately rewarding such promote one criterion for com- treats its employees like pets.

HARVARD BUSINESS REVIEW November-December 1993 11

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