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January 13, 2011

Are Rewards and Incentives Lean ?

Is the widespread business practice of incentives, merit awards, and other rewards desirable in a lean organisation ? This is an important question. After all, anorganisation’s reward policies are often an important element in its culture.


It is a question that Alfie Kohn addresses in his book “Punished by Rewards” (many thanks to group member Christopher Rowe for lending me his copy). Kohn makes ablistering attack on the culture of contingent rewards (do this and get a reward); presenting extensive evidence that such rewards bring no long term benefit and, in fact, are positively counter-active: destroying cooperation and teamwork (with group incentives discouraging cooperation between groups), and creating unhealthy conflicts between managers and staff. Rewards create an organisation of dysfunctional mercenaries, rather than a supportive team of problem solvers.


The evidence presented is convincing – individual and group incentives undermine the cooperative, inquisitive, mutually respectful, problem solving culture we wish to create with lean. Furthermore, Mr Kohn argues that reward structures distract attention from the root causes of problems that affect performance. Rewards encourage risk avoidance, “passing the buck”, and keeping quiet about mistakes; and they discourage creativity and action to improve business processes.


Mr Kohn summarises his arguments thus: “when we are working for a reward, we do exactly what is necessary to get it, and no more”. Rewards may encourage activity, but they impact adversely on quality, commitment and engagement. The trouble is that the reward becomes the end in itself. Instead of working together to improve the process, we work as individuals to determine the easiest route to gain the reward.


Mr Kohn is equally dismissive of performance appraisal or evaluation for the same reasons – extrinsic targets, and hoops to jump through, destroy intrinsic motivation. “The performance appraisal … is typically a stressful annual ritual in which employees are ranked, rated or otherwise judged”. The opposite of lean!. The demotivating effect of individual evaluation is compounded if the rewards are artificially limited (I know of workplaces where only a set percentage of staff can get a “grade one” and so on). The evaluation process then becomes actively destructive, leading to feelings of being cheated, and accusations of managers playing politics. Such practices are, essentially, about control – and people resent being controlled.


So if rewards, incentives, and merit awards are not helpful to lean, what do we do to motivate performance ? Make the work intrinsically interesting of course ! And that, I would have thought, is the very purpose of lean !


But what if we want to reward success ? Well the key is not to make the reward dependent on some contingency but to have an egalitarian approach (a profit share scheme with fair and transparent criteria for example). But surely, I hear you cry, that means that the “slackers” are rewarded the same as the “stars”. Yes, that’s true; and there are two answers to this point:


Firstly,we need to look at the root causes of why some people are allegedly “slacking”,and improve processes accordingly. Perhaps it is for personal reasons, in which case we need to provide suitable support. Or perhaps it is because of problems with the work, in which case we need to involve them in improving their work processes.


Secondly, every organisation needs a range of personality types to succeed, and you’ll usually find that the “stars” shine because of the great support they have. Even great salespeople will only do really well if they have great administrative support; a fantastic customer service team; and splendid after-sales backup. It is unfair, and will destroy the process, if only the“star” is rewarded.


As Frederick Herzberg said, “Managers do not motivate employees by giving them higher wages, more benefits or new status symbols. Rather employees are motivated by their own inherent need to succeed at a challenging task”. To this end, Kohn lays out two criteria for judging a rewards policy:


1.Are we encouraging the individual to make his or her own judgements about what constitutes good performance?


2.Are we creating the conditions for the person to become more deeply involved in what he or she is doing?



So what is the antidote to the destructive effects of the incentive pay culture ? It is to pay people fairly and equitably (according to their skills and length of service for example); to maximise their motivation by involving them in the design and improvement of their work; to give them opportunities to changeroles regularly; and to support them to develop collaborative problem solving and decision making processes. That is lean !


I have focussed on the business aspects of Mr Kohn’s book here, but he spends more time in the book on the motivation of children to learn – and is equally scathing about rewards in school. Instead he argues for the creation in schools of a culture of collaboration, choice and involvement in the content taught.


The book can be a bit heavy going at times, and probably could makes its case in half of the space, but it is well written and compelling. His arguments are powerful and persuasive. The carrot and stick don’t work. We need to sit up and change the culture of our businesses and schools to something that engendersengagement, involvement and commitment. Alfie Kohn’s views on reward policies have a major role to play in organisations that wish to embody the true philosophy of lean.