CEO JOURNAL
Just Die Already L
ike every villain in every teen slasher movie, some destructive business concepts just refuse
to die. Tey live and breathe and continue to harm despite overwhelm- ing research evidence and real world experience that should have smoth- ered them decades ago. Bonus pay, and performance incentives generally, are one such concept that I wish would just die already. Business performance incentives should have died a quick death in 1968, if not before, upon publication of Frederick Herzberg’s seminal Harvard Business Review article “One More Time: How Do You Motivate Employees?” which was based on his “two factor theory” first developed in the late 1950s. One of his central conclusions was that while in- centives can have a brief positive impact, they become increasingly ineffective and even counterpro- ductive with time. In the years since, eminent
management gurus including W. Edwards Deming and Peter Drucker borrowed copiously from Herzberg and wrote extensively on the evils of incentive pay. In fact, Deming dedicated one of his famous 14 Points to the subject, and Drucker published and taught many of his own theories about motivation, all of which were rooted in Herzberg’s research. Te work of these gurus has been
strengthened in recent decades by a steady stream of studies that cor- roborate and expand upon Herzberg’s pioneering results. For example, Daniel Pink published a book in late 2009 called Drive – Te Surprising Truth About What Motivates Us. Tose who read it will discover again how right Herzberg was and find the only surprising thing about what motivates us is the fact that so many business ex- ecutives still don’t get it and incentives just refuse to go away. But why? Well, some people
remain convinced incentives work and go so far as to state they have seen them work with their own eyes.
38 | MODERN CASTING December 2011
DAN MARCUS, TDC CONSULTING INC., AMHERST, WISCONSIN
Researchers and practitioners alike, me included, have probed this phenom- enon over the years and revealed the truth behind those claims. Too often, it seems, businesses put in place incen- tives that reward behavior employees should be doing anyway and in fact would do no matter whether the incentives were there. For example, some metalcasters provide incentives to encourage their sales people to sell castings and, when casting sales do indeed occur, convince themselves all
As one might expect, such phony incentives are almost never paid out, and for those employees who don’t see through and beyond this scheme and leave, the worst possible kind of demotivation inevitably sets in. CEOs should have abandoned in-
While incentives can have a brief positive impact, they become increasingly ineffective and even
over again of the positive power of incentives. When we incentivize sales people to sell or, for that matter, CEOs to make profit and those things actu- ally occur, we aren’t motivating them but doing precisely the opposite. We’re rewarding mediocrity, stifling initiative and teaching them to expect bonus pay for doing the job they were hired to do and for achieving the results they were hired to obtain in the first place. In other cases, the reason incen-
tive pay is still around—and its praises still sung—is not at all comical but chillingly nefarious. Te truth is some business owners are dastardly cheap and connive to pay employees fairly only when times are good and their pockets are full. In such cases, employ- ees are offered a below-market salary with the alluring possibility of a big performance bonus. But these schemes are really nothing more than a bait- and-switch, because the employees have little real influence on business performance while the owners hold all of the cards and make all the rules.
counterproductive with time.
centive pay long ago, and the urgency to do so becomes greater with every passing day. As the Baby Boom gen- eration has given way to Generation X over the past 25 years, the allure of money and power of incentives to entice the new generation of employees have diminished. And now, as Millennials are enter- ing the workforce in numbers, researchers have found that these newest employees are far less likely even than their Gen- X predecessors to be enticed by such schemes. Moreover, it appears that team-oriented Mil- lennials may prefer the compen- sation arrangement I have been advocating in this column for years—straight salary with profit
sharing for all. Because that research gives me hope
the Millennials will finally drive a stake through the heart of incentive pay, I’ve decided to lighten up on the concept. Rather than try to talk someone out of this self-destructive behavior, I just shake my head when I hear that a metalcaster is spending hundreds of thousands of dollars on computer software to support its complex system of production incentives. When a business owner calls me to complain his products are underpriced because a former sales manager was more inter- ested in his incentive pay than in the company’s bottom line, I just smile to myself. And when I hear that the siren song of incentive pay is driving some customers to build inventory at year’s end and others to reduce it, I chuckle silently at the absurdity of it all. But I don’t ever laugh out loud. I’m saving that for the funeral.
Keep the conversation going. Reach the author at
tdcmetal@wi-net.com to comment on this or any CEO Journal column or to suggest future topics.
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