How Incentives Can Crush Motivation to Do the Right Thing

Paul was feeling pretty good about his new incentive program.

He had devised a game for the cashiers he managed where the cashiers on each shift were placed on teams. Throughout the month, he would randomly select cashiers to observe using the same criteria that the company's mystery shoppers used. The cashier's mystery shopping score would be added to their team's total, and the team with the highest score at the end of month would receive a bonus.

The cashiers loved it the first month. It did okay in month two, though performance slipped a little. By month three, Paul started wondering if he needed to do something new or scrap the game altogether.

That's when he noticed the problem he had unintentionally created. The cashiers who won now expected the bonus to do their jobs. The cashiers who didn't win performed even worse than they did before the contest was created.

Paul tried unsuccessfully to come up with a new incentive program, but service didn't get any better. Then he tried scrapping it altogether and service got even worse. 

His experienced revealed a dark secret of incentives: they crush motivation.

Smug employee demanding more money.

Money Kills Motivation

In 1971, Edward Deci ran a groundbreaking experiment on the use of incentives.

He recruited students for what they believed was a study about problem solving. Each student attended three, one-hour sessions where they tried to solve four different puzzles using a Soma cube, a puzzle toy consisting of seven pieces that can be assembled into different configurations. An experimenter was in the room ostensibly to time how long it took subjects to solve each puzzle.

The real experiment was a test of intrinsic motivation. During each one-hour session, the experimenter left the room for eight minutes and instructed the subjects to do whatever they liked. This was in the pre-smartphone era, so the options were:

  • Play with the puzzles

  • Read one of the magazines placed in the room

  • Do nothing

Deci placed the subjects into an experimental and control group. The first session for both groups was identical, but there was a twist in the second session. The people in the experimental group were given $1 for each puzzle they solved. This meant they could earn the equivalent of $25 (adjusted for inflation) by solving all four puzzles during the hour. 

In the third session, neither group was paid, just like session one. 

The real test was to see how much of their free time each group would spend playing with puzzles in round three. Here were the results:

Graph showing the time spent working on puzzles.

The experimental group spent less time on the puzzles after they had previously been paid while the control group spent more time. This shows the motivation to play with puzzles decreased after an incentive was introduced, but increased when there was never any incentive.

Thinking back to the manager, Paul, and his cashiers, Deci's experiment helps explain why the incentive program did little to improve service. 

Incentives Create Bad Behavior

There's more at stake than just poor service. Incentives often cause bad behavior.

According to Nate, a former support team leader, contests can easily demotivate employees. "We used to try to do little competitions between agents. It just never worked. One or two would go all in and immediately turn off everyone else, who just would not participate."

Beth, a customer support manager, told me "We would occasionally do a ticket blitz that came with prizes, but it had a hard end date and was, frankly, mostly about volume at that point." 

Many companies offer incentives to employees who get good survey scores. The scores might go up, but often through manipulation and gaming the system rather than better service. If you've ever experienced someone pleading with you to give them a "10" on the survey, you've seen this in action.

A lot of companies tie incentives to revenue generation, which can also go badly. This example comes from Erica. "We had a month-long dialing contest to encourage new business development. The idea was that the salesperson who made the most calls in any given week would be eligible for a prize. Some of the salespeople started making random calls to ridiculous places to get their tally up. I don't think we landed a single new piece of business that month."

The list of egregious behaviors goes on:

  • Entering fake surveys to boost scores

  • Creating false accounts to earn sales incentives

  • Pressuring customers to avoid account cancellations

  • Closing service tickets before the issue is solved to increase productivity

  • Hanging up on customers to keep talk time low

These are just a few examples. You can find even more stories of incentives creating the wrong behaviors in my book, Getting Service Right.

Take Action

Managers often ask me how they can possibly motivate their employees without incentives.

The answer might surprise you—if you hire right, your employees are naturally motivated! Most customer service professionals truly want to do a good job.

The key is to make it easy for your employees to do the right thing and take care of their customers. You can learn more and see examples in this webinar I facilitated with Five9's Darryl Addington and ICMI's Erica Marois.

Why Incentives Are a Tool of the Lazy Manager

"Let's create an incentive plan!" 

That's the rallying cry for lazy managers. Whether its lagging customer service survey scores, poor productivity, or dismal attendance, lazy managers think the solution is an an incentive.

Or perhaps a disincentive will do the trick! 

A three strikes and yer out sort of thing where bad employees receive marks on their permanent employment record which shouldn't really be called permanent because we all know that employee won't be there for very long anyway.

Why are incentives a tool of lazy managers

The short answer is incentives represent an apparent quick fix, which is tempting to a manager who doesn't want to put in the real work.

Here's a deeper look.

Who is Actually Motivated?

In a 1968 Harvard Business Review article, psychologist Frederick Herzberg made an interesting observation about incentives.

It's the manager who is motivated, not necessarily the employee.

A manager might be motivated to improve customer service survey scores. Perhaps it's part of her job review or she's catching some flak from senior leadership. Maybe the manager is competitive and just wants her department to have the best score.

Whatever the reason, she's desperate for results so she creates an incentive for employees who receive good survey scores.

But what about the employees?

The employees aren't really motivated to deliver better service. Better service isn't even part of the incentive. The incentive focuses on good survey scores, which is a crucial distinction.

So the employees might be motivated to earn the incentive. And some will step outside the lines to do it, even resorting to survey begging.


What the Lazy Manager Misses

A motivated employee wants to do something.

If employees are motivated to deliver better customer service, they'll willingly put in extra effort and find their way around obstacles. Motivated employees will look at poor customer service survey scores as an opportunity to learn and get better, not a disastrous set-back in their quest to earn an incentive.

The lazy manager doesn't see this. 

In my experience, the lazy manager will tell employees that survey scores need to improve. She'll announce the incentive and she might explain why improvement is important to her. ("My boss is really upset about our latest survey scores!")

But she won't explain why the improvement is important to the employees, the company, or even the customers. She also won't make a connection between her goals and what the employees want to achieve.

Lazy managers leave out the "Why?" completely when organizing an incentive plan.

They're too lazy to investigate what's causing lower survey scores. They don't take the time to involve and engage employees. They just want quick action.


A Better Way

Let's say you have an attendance problem.

The lazy manager will resort to an incentive (perfect attendance awards!) or a disincentive. Many customer service teams have elaborate attendance policies that make your head spin. And every one of those managers complains about employees who abuse the policy and do just enough to keep their job.

There's a better way.

  • What if you made work a place employees wanted to come to?
  • What if you had a customer service vision that gave employees a clear purpose?
  • What if you hired people who wanted to do what you wanted them to do?

The problem with this plan is it takes time. The benefit is it works.

Daniel Pink decoded many myths of about employee motivation in his best-selling book, Drive. He discovered that employees really crave three things:

  1. Purpose. There's got to be a point to all this work.
  2. Mastery. We want the ability to be good at what we do.
  3. Autonomy. It's good to have some measure of control over the work we perform.

(You can read a review of the book and it's application to customer service here.)

The short version is lazy managers won't take that time. They'll look for a shortcut and that shortcut is usually an incentive.

When I did research for The Service Culture Handbook, I never once heard a customer service leader talk about incentives as the key to a customer-focused culture. What I did consistently hear was leaders describing building a great service culture as a time-consuming task that required long-term commitment. 

These managers achieved success because they were willing to put in the extra work.

Culture, Not Rogue Employees to Blame at Wells Fargo

Employees at Wells Fargo have done a bad thing. Now, the question is who's to blame?

Last week, Wells Fargo made national headlines when it was revealed that employees have opened more than two million phony bank and credit card accounts since 2011. These accounts were opened in the names of actual customers without their consent in an effort by employees to achieve aggressive sales goals. Roughly 5,300 employees have been fired as a result. 

John Stumpf, Wells Fargo's Chairman and CEO, wants to make it clear that this was the work of rogue employees. He's wrong. The fault lies squarely with Stumpf, his executive team, and the culture they've created.

More on that in a moment. For now, let's look at Stump's take that Wells Fargo had, and continues to have, a customer-focused culture. Here's a quote from the Wells Fargo website:

Stumpf sent a message to all Wells Fargo employees on September 8, the day news of the widespread fraud was breaking. He referenced the company's culture no less than four times, including this:

"Our entire culture is centered on doing what is right for our customers."

On September 13, Stumpf defended the culture in an interview with the Wall Street Journal and blamed employees for the massive fraud. "There was no incentive to do bad things." 

That same day, the company's CFO, John Shrewsberry, told an audience at the Barclays 2016 Global Financial Services Conference, "It was really more at the lower end of the performance scale where people apparently were making bad choices to hang on to their job."

All of this follows a disturbing trend of corporate executives trying to blame their employees for widespread service failures.

The truth is that this epic fraud didn't occur despite the culture at Wells Fargo. It happened because of it. Here are just a few things to consider:

First, the numbers are staggering. I'm sure this type of activity happens at a low level in nearly every bank. But, 2 million phony accounts and 5,300 employees fired is an epic scale. Culture isn't defined by a slogan or what the CEO claims in an interview. It's defined by what people actually do. And, for the past five years, thousands of employees have been behaving badly.

Second, the timing looks bad. Here's a timeline that puts it into perspective:

  • June 30: The company set aside $190 million for fines and customer remediation. 
  • July 12: Carrie Tolstedt, head of retail banking, announces her retirement.
  • September 8: Wells Fargo reveals the settlement agreement.
  • September 13: The company announced it will eliminate sales goals for retail employees, effective January 1, 2017.

It should be noted that Tolstedt supervised the 5,300 rogue employees. The 2 million phony accounts happened on her watch.

Publicly, Stumpf is backing Tolstedt. In a statement announcing her retirement, Stumpf gave her nothing but praise. “A trusted colleague and dear friend, Carrie Tolstedt has been one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.”

Notice Stumpf mentioned culture. A culture where 2 million phony accounts are created without customers' consent. A culture where 5,300 employees are fired over a period of five years for this fraud.

Finally, there are the many comments from Wells Fargo employees describing an intense culture that pressured employees to cross the line. Here are just a few:

Julie Miller, a former Wells Fargo banker, told the Charlotte Observer, "It became a living nightmare. They almost doubled our goals and decreased our incentive pay. It drove me to drink."

Sabrina Bertrand, a former Wells Fargo banker, told CNNMoney, "I had managers in my face yelling at me. They wanted you to open up dual checking accounts for people that couldn't even manage their original checking account."

Back in 2013, former branch manager Rita Murillo described the retail banking culture to the Los Angeles Times. "We were constantly told we would end up working for McDonald's. If we did not make the sales quotas … we had to stay for what felt like after-school detention, or report to a call session on Saturdays." Murillo said she had to provide her bosses with hourly updates on her branch's progress towards sales quotas for opening accounts.

So, why would Stumpf defend his company's culture despite all this evidence to the contrary? 

Just like their employees, Stumpf and other Wells Fargo executives have their own financial incentives to consider. Stumpf was paid $19.3 million last year. Shrewsberry, the CFO, was paid just over $9 million in 2015.

Fortune reported that Tolstedt is leaving the company with $124.6 million in stock, options, and restricted shares. Tolstedt would have had to give back at least $45 million if she had been fired instead of retiring.

That's lottery money. As in, buy your own island and a yacht to sail around it money. 

In a world where people physically assault each other for free t-shirts at sporting events, it's easy to imagine what a corporate executive would do when crazy lottery money is on the line.

3 Strategies to Keep Your Incentives from Backfiring

Note: This post original appeared on August 28, 2012 as an article on the International Customer Management Institute (ICMI) website. I'm reposting it in honor of my upcoming session at ICMI's 2012 Call Center Demo & Conference. While it focuses on call centers, I believe the lessons are universal.

Call center managers often turn to a variety of incentives and rewards to encourage good performance. Examples include games with prizes awarded to the winning teams, cash bonuses paid to reps who meet certain performance targets, or gift cards given to recognize a special achievement such as a perfect QA score. Before implementing a similar program in your call center, you may want to examine evidence that suggests incentives and rewards can actually cause poor performance if used incorrectly.

Here are three examples of problems that can be caused by incentives or rewards, and the strategies to help keep them in check:

1. Problem: Reduced Motivation
Psychologist Edward Deci conducted an experiment in 1971 where subjects were asked to solve various puzzles with a set of blocks called a Soma cube. Participants were given some free time between activities and Deci noticed that many people continued to practice solving the puzzles on their own. When Deci announced a cash prize for each puzzle completed, participants spent even more of their free time practicing. However, when Deci stopped offering the reward, participants correspondingly stopped spending their free time working on the puzzles.

The lesson from Deci’s experiment is that an external incentive can reduce internal motivation. Let’s say you introduce a contest where agent can earn a gift card for meeting their schedule adherence goal for the week. Chances are you’ll see schedule adherence go up over the next week as people try to earn the prize.

But what about the following week when the contest is over? Schedule adherence will probably get worse, perhaps even sinking below pre-contest levels. You can keep running the same contest each week, but those gift cards can start getting expensive.

Strategy: Ask for employee input. Rather than holding a contest to promote better schedule adherence, engage employees in honest and open dialogue to identify obstacles that prevent them from doing better. You’ll likely gain new ideas for improving schedule adherence while earning your employees’ commitment to implement the solutions they helped create.

2. Problem: Diverted Attention
Another side effect of using incentives is they can divert your agents’ attention away from the desired performance. Perhaps your call center offers employees a cash bonus if they achieve the target score on a customer satisfaction survey. Your goal may be improving customer satisfaction, but the incentive will focus employees on earning good survey scores.

It’s a small, but important difference. Employees may offer happy customers extra encouragement to complete a post-call survey but not mention the survey to upset customers. They may try to blame problems on other employees or departments so unhappy customers will still give them high individual marks. They might even be too quick to transfer difficult calls to other departments to avoid a negative survey score. All of these actions can skew the survey results while helping employees earn their bonus.

Strategy: Enroll employees in a collective cause. Rather than incentivizing survey scores, set a team goal for customer satisfaction. Share survey results in team meetings and one-on-one discussions and solicit employee ideas for improving results. Asking for employees to contribute to a team effort creates a powerful connection to internal motivation.

3. Problem: Unethical Behavior
Incentives can also lead to bad behavior if the reward far outweighs the risk. For example, a software company might hold a contest with its technical support team to see who can close the most trouble tickets within the time specified in their service level agreement (SLA). If the prize for winning the contest is valuable enough, reps may be motivated to close tickets before the problem is fully resolved. This tactic may result in meeting the SLA, but it will also undoubtedly frustrate many customers and cause a spike in trouble tickets.

Strategy: Recognize, rather than incentivize, great performance. In his best-selling book, Drive, author Daniel Pink demonstrates that rewards can be more effective when they are unexpectedly given after the performance occurs. Rather than holding a contest to see who can close trouble tickets the fastest, you can periodically recognize reps for going above and beyond the call of duty to fix a problem for a customer. This sends the message that their contributions are valued without diverting their attention away from their job.

Studies have consistently shown that managers believe employees are much more motivated by external incentives than is actually the case. As you can see from the above examples, tapping into your employees’ own internal motivation is often a better way to improve performance.

Jeff Toister is the author of Service Failure: The Real Reasons Employees Struggle with Customer Service and What You Can Do About It. The book is scheduled to be released on November 1.

You can learn more about the book or pre-order a copy on AmazonBarnes & Noble, or Powell's Books.