Someone just sent me a YouTube video of Steven Levitt, co-author of Freakonomics, speaking to 1200 business leaders in London in 2007. The YouTube video is titled, “Why Incentives Don’t Work.” Levitt said in response to a question that I could not hear, “In terms of carrot and stick, economists don’t have much to say.” The problem is that he didn’t stop there. He went on to talk about how a company where his wife worked gave turkeys to employees (around Thanksgiving I suppose). He related how the first year the turkeys were appreciated but by the third year they were complaining and quarrelling with management about them – they are smaller; can’t you give us something else; etc.
A beginning student in behavior analysis can tell you why management’s attempt to do something positive for employees worked this way. Non-contingent reinforcement usually creates a long-term problem for a business. You value most what you earn, not what you are given. As I have said many times, “If you give people something for nothing, you make them good for nothing.” Or “If you give people something for nothing, you can never satisfy them.” This is exactly what I believe happened in his Levitt’s wife’s company. They gave them something for nothing. I might add that there are cheaper ways to upset people.
He also says, and I certainly agree with him, that financial incentives are overrated. I have spent my career in business helping businesses understand that money is only a very small part of motivation. Much of what I have to say in OOPs is about how organizations waste time and money with poorly structured management and pay systems.
Levitt suggested that the solution to improving organizational performance is not with financial incentives but the ability, and I quote, “to cajole or trick employees to think they are doing something important.” While he prefaced this remark with a qualifier, “I know this is going to sound weird or bad,” it told me that he knows little about how to manage effectively and even less about how to create a workplace that brings out the best in people.
While he talked about Google as a great place to work, where I guess management there has found a way to “cajole or trick people into thinking they are doing something important,” he has nothing to say about how to create such a place anywhere else. Creating such a place is not mysterious. There is a technology in the science of behavior analysis that allows those who know it to create workplaces where people feel they are doing something important every day and without resorting to trickery.
As to whether incentives work, the problem is that they do work; they just don’t always work as they are planned. This is because the contingencies of reinforcement are structured in a way that they reward results independent of the behavior that achieved them, which are often not what management wanted, or that they are structured in a way that inadvertently reinforces behavior that they don’t want. Both these problems can be corrected by people who understand behavior.
Levitt was right when he said, “In terms of carrot and stick, economists don’t have much to say.” He should have stopped there and said, “Ask a behavior analyst. They have a lot to say.”
I spoke last week to a group of 500 managers at Fortune Small Business Growth Summit, a yearly conference in Dallas organized by Verne Harnish. The group was composed of small business owners and their key managers. (By the way, according to the Small Business Administration (SBA) in certain classifications a business can have over $175,000,000 in sales and up to 1500 employees and still be considered small.) The youthfulness of this group is important for a couple of reasons. First, they are quick to see the advantages of arranging conditions for change through rapid reinforcement and secondly, they are dedicated to early adoption of strategies that will make their businesses successful.
Dr. Anders Ericsson’s research on expertise has finally received some good attention in Malcolm Gladwell’s book, Outliers and Geoff Colvin’s book, Talent Is Overrated. These books place a new emphasis on behavior and designing in deliberate practice to get to extraordinary performance. Ericsson (1990)¹ says that it takes 10,000 hours (20 hours for 50 weeks a year for ten years = 10,000) of deliberate practice to become an expert in almost anything. I appreciate the emphasis that Dr. Ericsson’s research has brought to the importance of experience in the development of expertise as opposed to some innate intelligence or talent that is often assumed to be beyond ‘training’. In fact, however, it cannot be hours or years of practice that makes the difference. 
