Before You Create That Incentive Program, Remember Dale Carnegie's Advice

After a few years of frustration and uneven results as a people leader, many managers come to wonder whether their challenges with making their people more successful wouldn’t be solved by creating an incentive program. After all, lots of companies use them, these managers reason, so they must work.

If that’s your thinking at the moment, before you go bounding into your boss’s office with your next great idea to energize not just your group but – why not? – the entire organization, remember Dale Carnegie’s advice on using humor in public speaking.

In addition to How to Win Friends and Influence People (in my humble opinion, the best book on leadership ever written), Mr. Carnegie is also the author of The Quick and Easy Way to Effective Speaking. Anyone new to the topic will find his guidance clear and helpful. But near the end of the book, he offers this surprising advice on starting a talk with a funny story: Don’t.

If you’re like me, you’d think, “well wait a minute; I’ve seen lots of great speakers open their talks with funny stories, and it really gets them off to a great start.” Yes it does, Mr. Carnegie would acknowledge; but that’s because they’re already great speakers. They’re funny, and they know they can be funny in front of people. If you’re reading this book, you probably don’t know that. And you don’t want to find out you’re not that funny in front of people when you’re “funny” opener turns out to have offended half your audience, or was a story they’ve already heard from someone who’s way funnier than you, or just landed flat. In those situations, you haven’t warmed up your audience; you’ve turned them off and ensured they won’t care about your message, which is the reason you’re in front of them in the first place.

Incentives carry the same dangers. The first rule of compensation is “you get what you pay for,” and that’s often the problem: Business leaders establish an incentive plan to encourage one type of behavior not realizing that they’re accidentally encouraging another. One obvious example is the piecework plan intended to motivate production employees to higher levels of productivity, which actually incentivizes them to stop or slow production after a certain point since more effort becomes less lucrative.

And incentive programs can prove not just counterproductive, but outright harmful. An owner of several industrial laundry plants introduced an attendance incentive at one site as a pilot. The often-absent employees, who were the putative objects of the incentive, only improved their attendance when they were eligible for the award, proving once again that any system can be gamed. But what was much worse was that the employees whose pre-program attendance was near perfect reduced their productivity by 6% to 8%. Apparently, being rewarded for behavior they were already exhibiting was actually demotivating, and lead to an overall decline in plant productivity by 1.4%.

The widespread introduction of workplace teams in the late 1980s saw an explosion in experimentation with compensation structures. Management was suddenly abuzz with group-based pay, competency-based pay, various profit-sharing arrangements, and numerous other plans. DuPont even inaugurated a pay at risk structure. Virtually none of those experiments lived up to expectations. Productivity gainsharing is probably the one exception, but only to a point; several studies on the effects of incentive plans show that most all lose their ability to motivate over time, and before long employee productivity returns to pre-plan levels.

It seems to me that organizational psychology has yet to turn the ashes of these exercises in unintended consequences into useful prescriptions for creating successful incentive compensation plans that will work with the level of mechanistic certainty that most employers are looking for from them. You’ll certainly find employers who will tout the success of this or that such plan, and I’m not going to tell them they’re wrong; on the other hand, few had done any quality benchmarking prior to implementation, so it’s hard for them to really understand the impact. And most of the enthusiasm is over plans only recently implemented.

I find it telling that a review of Internet articles on incentive plans will give you a thorough understanding of mistakes to avoid, but next to no concrete guidance on what to do, beyond safe platitudes like “tailor the incentive to your group.” If you find that advice that’s followed by actual guidance on how to tailor properly, please send it to me.

Incentive plans, like humor in speaking, are kind of like nitroglycerin; possibly helpful if you really know what you’re doing with it, but otherwise just as likely to blow up in your face, so best avoided. In that light, Mr.

Carnegie’s warnings about the dangers of humor in speaking offer unspoken advice that’s especially helpful to our frustrated leader: Become good at what you do by getting the fundamentals right, not by relying on what’s essentially an uncertain shortcut.