“If a company is to obtain the needed contributions, it must reward those who make them. Decisions on people and especially its promotions affirm what an organization really believes in, really wants, really stands for. They speak louder than words and tell a clearer story than any figures.”
—Peter F. Drucker
In 1975, Steven Kerr wrote an influential article in The Academy of Management Journal titled “On the Folly of Rewarding A While Hoping for B.” In this piece, Kerr provides examples of reward systems that actually encourage the opposite behavior of what management desires.
The illustrations in the article are typical of those I have witnessed during my career, and they are the reason I’ve spent so much of my time working, teaching and conducting research in the field of management control systems, where rewards play a prominent role.
We often hear nowadays that “command and control systems” are obsolete in our age of empowerment, and that is true to a certain extent; informal systems now dominate formal ones in many organizations, especially those that are knowledge-based. But the central aspect of rewarding behavior to achieve the results we want has not changed, and it will not change in the future.
Indeed, this is the vital point of leverage that Peter Drucker identifies in the quote above. People take careful note of how they and their colleagues are actually rewarded and penalized in an organization—regardless of what their human-resource manuals may say.
Who is promoted? Who is fired? What criteria actually seem to be at work in the organization? Is it performance or is it politics than matters most? These are the true controls of the organization that direct behavior.
People will work against their best interest, but not as a general rule. Organizations often find this out the hard way when they try to downsize. If they do it in a way that respects the contributions people have made to the organization, others will see that and, although it’s not easy, most of the employees who remain will understand that these decisions were necessary. If, on the other hand, these decisions are made in a way that is disrespectful of people and their service, it will not only damage those affected directly but also adversely influence the future behavior of others. These decisions thus “speak louder than words.”
What is the solution? Our system of measurements ought to be in alignment with the way we really treat people in our organizations. Otherwise, our rewards will misdirect behavior. We can say what we want about integrity and virtue, but it is the way we treat people that shows whether leaders have it or not.