Not long ago, a bank in Colombia found itself in a managerial thicket. Its loan officers were putting off a significant amount of their work until the last week of the month, just before their monthly bonuses were calculated.

Such behavior didn’t make much sense. By procrastinating, the loan officers were creating cash flow problems for the bank, stressing themselves out every four weeks, and putting their bonuses — about 35% of their total salary — at risk. What’s more, they were missing their weekly targets, which cost them a penalty of 5% of their commissions.

¡Qué problema!

Four researchers — Ximena Cadena, Antoinette Schoar, Alexandra Cristea, and Héber M. Delgado-Medrano — decided to see if they could motivate these bankers to do better. They divided the branches of the bank into an experimental group and a control group. Employees in the experimental group could win small prizes like movie tickets for meeting their goals during the first two weeks of every month. The bank also published a newsletter that featured the month’s three top employees.

Later, the researchers added another benefit. Twice a month, “branch managers met with loan officers to talk about their performance and to remind them of their weekly targets and to encourage them to work harder to achieve them.”

Nothing else about the bonus structure or employee compensation changed.

These interventions worked — big time. The loan officers became much better at distributing their workload evenly throughout the month. The quality of their portfolios stayed the same.  And “loan officer compensation – independent of program prizes – increased by 25% per month.” (Full paper is here.)

¡Qué magica! Procrastination problem solved!

Except – all these lovely results disappeared when the incentive program was taken away. Or, as the researchers put it: “these effects did not survive after the intervention was stopped at the end of our experiment.”

Motivation 2.0 says the way to keep the loan officers from lapsing back into bad procrastination habits is to keep the carrots and sticks coming. But that’s rarely sustainable. And it often risks misdiagnosing the true problem and finding the most effective solution.

Maybe the deeper mistake was making the monthly bonuses the most salient aspect of these loan officers’ jobs. And maybe, instead of devising tactical steps to preserve that salience, the bank should have worked to reduce it. They could have paid healthy base salaries – and awarded a modest year-end or semi-annual bonus based on how many loans each person closed, levels of satisfaction among bank customers, and the bank’s overall performance. (Yes, I’m suggesting they tear a page from the Red Gate playbook.)

Once these controlling external rewards became less prominent and harder to game, the bank could have worked to raise the salience of other aspects of the job. Remember: Partway through the experiment, the researchers added a new tack. They asked the loan officers’ managers were to meet with their employees a couple of times a month, discuss their goals, and generally encourage them. It was only after this intervention that the loan officers reported a significant decrease in job stress and a significant increase in job satisfaction. Besides, by their own report, what these loan officers craved was recognition and feedback (the newsletter) and community and connection (encouragement from their supervisors).

Make no mistake: I’m all for paying people what they’re worth. And I’m opposed to schemes that compensate people the same regardless of their performance.  But whether you’re at a bank in Bogota or a school in Schenectady, relying on “if-then” rewards to encourage great work is like guzzling six cups of coffee and downing three Snickers bars for lunch. It’ll give you a burst of energy – but the effects won’t last. For the long-term, human beings need a very different kind of nourishment.

17 Responses to “Carrots and sticks: Procrastination fix?”

  1. David Lapin says:

    I talk and write a lot about your work in this area Daniel.For many years we have demonstrated how carrot and stick alone, can at best motivate people mechanistically, it can never inspire the heroic in them. And after all, even the threat of losing a carrot if you don’t hit target is just a velvet covered stick, isn’t it? So stick and stick, not even carrot and stick!

  2. Don Kim says:

    A long term solution would probably involve having a work culture that encourages and facilitates employees to self actualize their careers and feel that they are truly part of an organization’s long term mission. But how many companies actually do this? Do any exist today?

  3. Beautiful example. I suspect procrastination is a problem at many workplaces! Something to be said for regular communication with managers and small tweaks that add up to big changes. Thanks again, Dan.

  4. Dan H says:

    Thanks Daniel,

    We educate our kids the same way… and as such for the vast majority… th”engaged, lifelong learner, who’s capable of critically and creatively thinking about the world remains an impossible utopian dream.

    I cite your work in the talks I give to teachers all over Australia on what it means to really engage kids and why it is important.

    It will also form the basis of a chapter in my book(work in progress) where I look to challenge some if the things we take for granted in education. Teachers thinking they can recognise engagement being one of them.

    Thanks again.
    Cheers,
    Dan

  5. perry says:

    Interesting article. I find it weird that sales people would put their compensation at risk and my gut tells me there was something else at play that made them push the work out to the end of the period.

    That said, I used to manage a sales force and one of the key behaviors was to engage in frequent sales coaching. Keeping them focused on where they need to be to meet their goals, discussing techniques and tools, and encouraging them to meet goals early needs to be consistent and continuous.

    It’s basic management theory that compensation doesn’t work to motivate people in anything but the short term.

    Thanks

  6. From what I have seen, as long as the financial needs are met, people really just wanted to be treated like human beings. They want it understood that they have a life outside of the office and that their job supports that life, not the other way around. We use basic rewards and punishments to train animals; why would we do the same with people when they are so much more complex? Basic, external motivators can actually become de-motivators when they undermine our natural drive to be part of something bigger than ourselves and to perform well at it.
    -Kurt Buehlmaier

  7. Dan,
    Great post. I am an elementary school administrator and your work is so powerful for education. The PBIS model says to implement the carrot and stick model to change behavior. While I know this works initially, it simply cannot sustain itself. DRIVE illustrates this so perfectly.

    Educators have to help our students develop the intrinsic motivation that they’ll need to be successful later in life. Please keep this work up for the sake of educators!

  8. One should never underestimate The Hawthorne Effect: http://en.wikipedia.org/wiki/Hawthorne_effect

    I might just be because there is focus on their goals and their work in general, that there was an improvement. Only long term measurements are valid. I am an IT developer and we use a method called Scrum and we use a term called Sustainable Pace (http://www.industrialxp.org/sustainablePace.html) for another method called XP (eXtreme Programming).

    Stephen Denning writes about using Scrum in other areas than in IT development and he thinks that it will be the next big thing: http://blogs.forbes.com/stevedenning/2011/03/22/what-on-earth-is-scrum/

  9. Ivan Walsh says:

    Hi Dan,

    I’ve worked with two very large banks and… the appetite to change is not really there.

    You would think it is but, no not really.

    Unless the will to change comes from the top, stories like the one above dont get implemented.

    Solution?

    As they say in sports, ‘the players change or change the players’

    Ivan

  10. Doug Jochum says:

    Interesting article…makes me wonder about the criteria used to hire these workers in the first place…in my classroom this year we worked on intrinsic motivation…i can see, in looking back, that had i procrastinated in involving my students all along the way, their accomplishments would have suffered immensely…
    my take on the bank solution is to develop leaders at the managerial level who don’t let their loan officers play solitaire at their desks all month long, ignore their weekly responsibilities, and place the financial well-being of the bank at risk…where is THEIR intrinsic motivation?

  11. Bernie May says:

    I find it interesting that part of the incentive program was a regular meeting with the manager. I wonder what would happen if you controlled for just that activity? You know, where your boss actually holds you accountable for your performance using spoken words.

  12. Interesting article.

    I wonder how long the incentive program you described at the bank ran for?

    The goal of an incentive program is to change long-term behavior by rewarding certain behaviors,which in this case can be referrals, up-sells and cross-sells, and inspiring people to get out of their comfort zones.

    Short-term success should not be a measure for success. However, clearly defined goals must be.

    The goal that the researchers stated “meeting their goals” is too vague and does not lead to behavioral changes. This would have meant pushing harder for the first two weeks of each month and coasting through the last two weeks. All this did was shift the workload to the first two weeks without any behavioral shift.

    A better result would have happened if the incentive program was designed to reward certain actions, such as:

    – points for every new account that they brought in
    – points for every referral
    – points for every new checking account opened
    – points for new hires they recommend

    Behavioral changes are the key to a successful incentive program. Not shifting workload to reward short spurt activity.

  13. Sheila says:

    This reminds me of an experience I had that really highlighted the challenge of “unintended consequences” related to incentives. I was in the office very early one morning and our building caretaker was in my office. He asked me to look at his head to “see if there is much blood”. It seemed that he had slipped on a rug, falling backwards and hitting his head on the edge of a desk. But, he “wasn’t out long”! There was a serious gash and a lot of blood. I told him I was going to make the appropriate calls and then take him to the hospital. He was appalled and insisted that he couldn’t go – because he was going to lose his half-day-off reward for 6 months with out a lost time incident. It made me wonder how many other injuries or incidents had gone unreported/ unmanaged to get the bonus. (Incidentally, he ended up having 11 stitches and a serious concussion.)

  14. I was a little surprised by your response to this situation. I expected you to highlight the apparent absence of purpose. My interpretation of this situation is that the organization gave autonomy before it ensured alignment on purpose or mastery. Their intervention was about reducing autonomy in order to promote mastery, but still no apparent focus on purpose.

    In our work with positive deviants and organizational performance improvements, the 3 elements of Motivation 3.0 always occur in the same order. Purpose drives mastery which leads to effective autonomy. If you have purpose, people want to get good at something (i.e. mastery) and only then — when there is alignment on purpose and people are good at what they do — can an organization give autonomy.

    Even things like processing loans can be powerfully linked to purpose, and once the linkage is made, performance improvements are lasting. Purpose drives everything for any lasting performance improvement.

  15. Will says:

    People need long and short term goals to stay motivated. So if you paid based on total number of loans over the year they would wait until the end of the year to make most of their sales.

  16. Jameson says:

    I’ve worked under at least 6 different commission plans, and have yet to see one that isn’t “gamed” by a significant portion of the sales force. The worse (lower base salary, riskier the commission/bonus) the program, the more it is gamed and manipulated.

    I think many of the executive who dream up these plans, totally discount the fact that they have large base salaries, and large bonuses, and even in a bad year they never slip down Maslow’s Hierarchy.

    The last time my VP tried to “sell” me a new comp plan, he was making a $160k base and me $50k. Without all or most of my commission/bonus, my mortgage would go unpaid (I live in Connecticut)and I wouldn’t save a penny. A bad year for him would have meant $250k rather than $400k.

    I think they only see the percentages and not the reality of the amounts.

  17. Art Events says:

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