Why Financial Incentives Don't Work

Tags: agile, transformation, incentives

When an organization elects to undertake an agile transformation of their teams and subsequently business processes, typically one of the last aspects to be considered is that of remuneration and incentives.  There is a conviction that leads many business managers to presume that in order to attract and retain top talent, you need to have a good carrot-and-stick reward system, and conversely a good pointy stick strategy for correcting poor performance.  This is the hallmark of many top-flight software and IT firms:  Signing bonuses, stock options, pay-for-performance incentives, merit increases, profit sharing, paid sabbaticals, service recognition awards, dogs in the office, etc.

In Dan Pink's TED talk from 2009 below, he explains why these extrinsic motivators (which are hang-overs from 20th century management maxims) do more harm than good in information-based technical work that increasingly rely on creatitive problem solving over mechanistic assembly because they narrow the focus of attention of teams and individuals to think more about the reward than the real need for the solution.  His remedy, based on recorded observations by behavioural scientists, suggests a solution that uses intrinsic motivators as the new "business operating system" for the 21st century.  It is comprised of three key elements:  Autonomy, Mastery and Purpose

  • Autonomy is the ability of the individual to have control over their own destiny - something that is not present in most rigid, command-and-control business models;
  • Mastery relates to the desire to improve in one's role because it has substantive meaning;
  • Purpose is part of the human condition - the yearning to do something significant with ourselves by serving something greater than ourselves.

When looking at adopting agile practices, autonomy is a core theme behind the empowerment of a self-organizing, cross-functional team. In order for agile teams to work well, autonomy isn't a suggestion but an imperative - and it is one that in my experience just about every individual on a team absolutely relishes because it is an explicit expression of trust and value in them.  By providing this autonomy to the team, you begin to realize benefits in productivity and creativity almost immediately - and it gets better over time.  We get better results when we recognize and encourage the things that elevate a job into a passion.  Passionate employees are ardent evangelists and loyal defenders; bored, devalued ones are lost opportunities that keep us from realizing greater things.

Along these lines, Patrick Lencioni made three complimentary observations in his well-known business fable, Three Signs of a Miserable Job:

  • Anonymity - People cannot be fulfilled (and thus productive) in their work if they aren't known;
  • Irrelevance - Even the most cynical employees need to know their work matters to someone;
  • Immeasurement - Success has to mean more than advancement-by-whim: Employees need to see tangible means of assessing their success or failure;

Taken as a whole, when we approach transforming our business or organization toward agile practices, while it may begin with a simple pilot project, it is the long tail of a much more significant change in culture if managed correctly.  Putting agile practices into place within a culture that effectively makes employees Anonymous, Irrelevant and Immeasured will not yield beneficial results - when we hear about "agile" or "Scrum" or "XP" failing, it's more than likely due to these factors.

For me, introducing Scrum to a team on a pilot project is just an appetizer for more significant, meaningful and positive changes to an organization's culture that naturally begin to degrade the necessity for using extrinsic motivators to encourage productivity.  As I've written in an earlier post, all effort in software development is intellectual and therefore creative; as Dan explains in his TED talk, you can't get the best creativity money can buy - in fact, if you bet your company on this strategy you'll likely lose to some upstart who realizes that you get the best results from people who are motivated toward a goal because they believe in it.  This speaks to a significant opportunity for companies to reap rewards that their competitors a literally leaving on the table.


What do you think? Let me know your thoughts below.

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