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Why Rewards Cause Problems #5: Rewards Discourage Risk

Guest post by: Robert Whipple

Article Overview: Nothing can be accomplished in an organization without some level of risk. Yet often the reward structure of an organization discourages people from taking a reasonable risk, so the incentives actually impede performance. The attached article shines a light on this interesting aspect.

Why Rewards Cause Problems #5: Rewards Discourage Risk

Rewards Discourage Risk Taking

I know this is true from personal experience. If there are specific rewards out there, people will focus in on them like lasers and often fail to do the right thing when conditions change. If the annual bonus is based on sales of Product A, managers will semi-ignore the potential new, hot, Product B until it can be worked into the goals.

Here the problem is one of timing. Setting up performance rewards is such a huge effort, most companies do it annually. In the real world, new concepts and opportunities fly by every day - sometimes every hour. The annual rewards programs tend to lock managers in to old paradigms and ignore potential windfalls. "A number of other studies have also found that people working for a reward generally try to minimize challenge. It isn't that human beings are naturally lazy or that it is unwise to give employees a voice in determining the standards to be used. Rather people tend to lower their sights when they are encouraged to think about what they are going to get for their efforts." (Kohn, 1993, p 114) This makes sense to me. Nobody likes to fail, so we try to set attainable goals. Unfortunately this lowers the bar on creativity, innovation, and risk taking, and that leads to mediocrity.

The antidote is to have the incentive goals be fluid and change with prevailing conditions. In large organizations this can get to be a problem because the systems are so cumbersome to set up they are usually done once a year only. This results in a calcification of the whole organization based on last year's platform. If the administration process was set up from the start with the idea of flexibility in mind, it would allow for slight shifts (or even major shifts) on the fly. This would allow people in the organization to truly focus on the most important thing at the moment.

Lou Holtz, the famous football coach had a saying. You should always ask "WIN" which stands for What's Important Now. By doing this, it will prevent the rewards system from stifling risk and innovation.

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Article Tags: motivation entitlement relationships problems Reasons Risk control, pay, Punishment, rewards



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