Individual Incentives (Business Traditions That Have to Stop Now Part 3)

Unconstrained guides Tiz Benvenuto and Dave Kane join Derek to take on individual incentive schemes. Comments include: "lazy", "cop-out", "band-aid", and "quick fix." Plus they don't actually work.

Full show notes on the Essential Dynamics Wiki.

Tiz, Dave, and Derek are all at Unconstrained.

What is Essential Dynamics with Derek Hudson?

Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!

Derek: 00:13

Welcome to Essential Dynamics. I'm your host, Derek Hudson. Excited to be here today with, my colleagues from Unconstrained, Tiz Benvenuto and Dave Kane. Tiz and Dave, welcome to Podcast World.

Dave: 00:27

Thank you. Happy to be here.

Dave: 00:29

Thanks very much, Derek.

Derek: 00:31

This is a long time coming, so I'm super excited to have you guys on. We've been, you've been behind the scenes. We've had our other colleagues, Glenn and Anne, out recently, and it's exciting to have you on. So Essential Dynamics podcast is an exploration of the extent Essential Dynamics framework, which we've been working on. The podcast is brought to you by Unconstrained, our consultancy.

Derek: 00:53

And what we're endeavoring to do is help people work through tricky problems. And on the podcast, we have we explore the principles of essential dynamics through deep conversations with interesting people. So today, I my interesting people are Tiz and Dave, and maybe we can just start with a quick introduction. Tiz, all I'm asking you is what excites you about talking about things like essential dynamic?

Dave: 01:21

What excites me is about up leveling the human experience. I think time is short, and let's just be the best we can be and do the best we can.

Derek: 01:32

That's fantastic. Dave, what excites you?

Dave: 01:35

I just really enjoy the conversations because once you get into them, people very easily step up a level, and they look at things from a higher level. And then afterwards, they go, well, that just makes sense. But it's just being able to ask the right questions and get them up there and and a little light bulb going off.

Derek: 01:53

So Yeah. And that's, I think how I, you know, came into Essential Dynamics was I was trying to understand how I solve business problems. And as I sort of documented, you know, the way I think about things and and essential dynamics unfolded it, I realized that it is primarily a way to think about systems, and to and a way to think about systems at the higher at a higher level than we usually do. And so I'm excited to have this conversation today. We're still in our, our theme about business traditions that must stop now.

Derek: 02:30

So I wanna put the topic out there. The business tradition that I wanna challenge today is this idea that we can design, incentive compensation schemes, to get people to bring their best into organizations. I think that that's I'm gonna, I guess, use these words. I think it's lazy. I think it's a cop out, and I think it doesn't actually work.

Derek: 03:00

But we had more voices today. So, Tiz, what do you think about, elaborate incentive compensation schemes?

Dave: 03:10

I think I think they're a great go to for what feels like a quick fix. But at the end of the day, you hit a point where, you're totally off the mark. It's not gonna get you what you think you're trying to get. And I think that's an important element as well. It's the perspective of getting.

Derek: 03:38

Okay. Can you say more about the getting?

Dave: 03:42

Well, when you ask me that question, I think of an environment that is, we you know, we need something more. Something's not happening the way we were hoping. So let's throw a Band Aid at it because we're not getting what we need to get, whether it's more to the bottom line or more off the production line or whatever the case may be. It's very much a get perspective. It's viewing what we show up to do as all about the end product or the end whatever and not really considering the, interrelatedness of the system with this component that's super important, which is the people and really what makes people tick, what motivates behavior, what gets results, that we ultimately hope from the system that includes people.

Dave: 04:49

But taking a full on perspective from getting is, I think, where the problems start.

Derek: 04:57

Well, I'm gonna, bounce this over to Dave because I know Dave has some opinions on even the concept of, human resources.

Dave: 05:06

What no. I think I'm I'm okay with the idea of of designing the incentive comp to bring their best. Where I find it breaks down is when you take it to an individual level. Right? When you take it down to a personal rather than a team, I think that's where the incentive starts to fall apart because it it it starts to bring about sort of unfavorable or undesired outcomes, I think.

Dave: 05:32

But if you're to do it at the right level where you're incentivizing the system, that that may work, but that most people don't go that route. Right? They they use the incentive plan, to try and take its place of performance management conversations. It's like, I'm gonna try and get your attention onto something by putting a dollar sign beside it.

Derek: 05:50

Well, and my experience is that, except for very, very, specified systems where there's no, sort of no variation is tolerated, which isn't the environment I've ever worked in, you you can't design an incentive system that will run your prop process optimally anyway. And then when you pit people against each other, in a sense, in the individual component, then then you're hooped. And I'll just I'll just give an example back from, from my my days when I did work in a manufacturing organization, and that's from time to time. We had these things called mini bonuses. And a mini bonus was like a hundred dollar bill, which is, kind of a problem for accountants because you gotta pay people a hundred $30 to give them a hundred dollar bill.

Derek: 06:49

The accounting for it was way more troublesome than it was ever worth. But, you know, if if we make this number for the quarter, then everybody gets a mini bonus. And to the extent that that was for everyone, then the system kinda gets optimized. But there was a situation once where, a salesperson wanted a particular order shipped, and it wasn't necessarily the top of the production queue. And he went into the team, and he said, if, you guys ship this by the end of the quarter, I'll buy everybody pizza.

Derek: 07:23

And now we had competing incentive systems going on in the organization. So I just I just feel like you could spend a lot of time designing a system to try and give people the signals they need to do the thing that you need them to do, or you could teach people the system. And, and for other reasons, which we'll we'll get into, if the people want the system to work well, you know, they'll figure out the steps. But I just don't know the management's set smart enough or flexible enough to design an individual reward system that's gonna get good performance. I think I read somewhere that the only thing you know for sure about an individual performance system is that you will motivate the behavior that maximizes the return for the people.

Dave: 08:11

Yep.

Derek: 08:12

As which says nothing about maximizing the return for the system.

Dave: 08:16

No. I agree with that. And then in my experience, not necessarily in the manufacturing side, everything's always been sort of team based deliverables where it's it's everybody's contributing to an outcome, and then they try to bring in the incentive for the individual. And it it just seems like they were told that they had to bring it in, but it's impossible to incent the individual well enough that you're gonna get the outcome you desire. It's just I've seen a breakdown in two or three organizations I've been in.

Derek: 08:45

Absolutely. You know, and and the example that I I go to, sort of obviously, is the idea of a commission sales structure. And I've in in an organization where the sales people are selling stuff you don't already have, then they're selling a promise and a specification which, you know, at some level might be challenging for the organization. And they might also sell it at a price which might not be profitable for the organization, but can move the sale along. And, and they get their piece of it, and then the rest of the organization is stuck with trying to deliver something that, wasn't priced well and, was specified beyond the capabilities of the team to deliver.

Derek: 09:34

And when I push on that, I think what people tell me is, well, that's the only reason that, these salespeople will work. You know, they don't get out of bed unless they're, you know, they're you're chasing a commission, and I I I have a trouble understanding that that's the only way to do it.

Dave: 09:54

I'd agree with you because, that's just looking at one element of of a system, and that's the benefit of looking at the system as a whole so that you are incenting where it needs to be incentive. But I'd like to go back to, your comment about maximizing return for the people. And I'm not sure if I'm taking this too far off, but maximizing the return for the people can come with a massive assumption that you happen to know what that is. And, I'd like to suggest that, again, pull me back if I'm going too far. People like to understand what the purpose is.

Dave: 10:41

They like to have a purpose. Maybe I'm broad sweeping here, but they like to have a purpose and a sense of belonging. So if we are, communicating and and and ensuring, a deep understanding of what we're all here to accomplish and how we each play a part in that, I think that that begins the understanding of how we maximize the return for our people. And I'd venture to suggest that that return is different in different components of the system, still relating to the people. The

Derek: 11:26

Yeah. No. Tiz, I I appreciate that. Let's go back even further then because we're in episode 89 of the of the Essential Dynamics podcast. And then the first five or six episodes, we set out the basics of Essential Dynamics, and I'm just gonna revisit that, very quickly to put this all in context.

Derek: 11:45

So essential dynamics suggest that things that we do as an organization can be viewed as if it was an epic quest. And one of the, and we do, you know, we we think of that because quests are hard, and and the work we do in organizations is hard, and sometimes we feel like we're being cheated because it's hard. But it's actually real that's really the point is we do hard things because that's what, you know, brings the value or as as Tiz is saying, sort of elevates the experience for for everyone. And so we broke down, this idea of a quest into three elements. There's the purpose of the quest, you know, the, the problem that you're trying to solve, the benefit you're trying to bring.

Derek: 12:29

There's the path that the journey takes, which is the systems and processes that are used to achieve the purpose. And then there's the people involved. Mhmm. And I always like to look at the people separately from the system. Now, the people work in the system, and there are steps that they take.

Derek: 12:48

But unlike all of the other resources in a system, the people are people. And they they have their own autonomy, they have their own individual goals, and somehow we get them to sign up with us on the journey. And I think we have to respect the fact that people have signed up for this journey for, you know, all kinds of different reasons. And when we work together to achieve the purpose, the system's gonna go much better. So what is it about the people?

Derek: 13:17

What do the people need? And, it's they need to get paid And, in a, you know, in a business system where we're talking about employees, they they need to get paid. But I don't think pay is the only signal, and it's certainly not the only motivator. Would you agree with that?

Dave: 13:34

Totally. Totally. I think there's research out there that actually pinpoint some number as well that after which it's the the the the there's diminishing returns.

Derek: 13:48

And and I've spent a lot of time on incentive pay systems or even just compensation in general, trying to work really hard to have it not be demotivating. Mhmm. And it certainly can there's lots of ways it can be demotivating. There I think the the limit to how much motivation it can provide is is not very far away. Dave, so what what's your experience?

Dave: 14:14

No. I just agreeing with that. I think you you wanna make compensation, you know, I think it's do you say they say just above average, but you wanna make it so it gets to a point where it stops not being an issue, I think. Right? It it's salary isn't a motivator, but it the conversation become a can become a demotivator.

Dave: 14:36

Right?

Derek: 14:37

So you

Dave: 14:37

just wanna make it not a demotivator. Because in your analogy, I just as you're sort of saying it, in all the stories I read, those who are along the epic quest that are solely there because they're gonna get compensated for it usually aren't the characters that make it to the end. Right? Some sort of awful thing happens to them. And I think it's right there.

Dave: 14:53

There are other values or other things that are pulling people along through these quests, and it's it's that motivation. It's that their own self, reward, I think, that sort of draws people along to to reach the success.

Derek: 15:07

Well and there's no end to what you can do when, when people are all in. And I think that's where we wanna go with our next episode. So in this one, I'm I still wanna understand, why this, tradition, why this, culture is there that, you know, we're gonna motivate people with pay. Like, that's that that just seems like the culture. And I I just share one experience that I've well, an experience that I've had more than once.

Derek: 15:38

I I feel I've been very fortunate to work with highly motivated people. And from from time to time, usually this comes from the board level, We've been pressed to have some kind of a individual incentive plan. And, in conversations, at some point, I push back and I say, I don't know if if I can get more from these people. Like, they're they're all in now, and they're not all in because of, any compensation structure. They're in because of what how they identify with what the organization is doing.

Derek: 16:13

And I think it's kind of insulting to say that if I pay them 10 percent more, I can get 10% more out

Dave: 16:19

of it. Kind of manipulative.

Derek: 16:22

Have you run into that kind of thinking? And, like, why why do people think that way?

Dave: 16:32

I'm I'm not sure I have a a useful answer, but you know what it makes me think of is parenting. We've all either had a parent or maybe done some parenting, and maybe we've picked up some of that there. You want something done? Here's what I'm gonna give you if you do it kind of thing.

Derek: 16:54

Well and and I guess in some sense, at at the time, if I can arrange for a transactional approach, if I if I buy, maybe somebody's selling and maybe I can get what I'm looking for.

Dave: 17:08

Yes. Yes. That's true.

Dave: 17:11

My god. Easier? I mean, it's easier for management to bring in, and it's it's easily viewed by the board or those above them of seeing action being done that is hopefully gonna lead to result. Whereas trying to, you know, improve engagement, that that that is certainly not something that is brought in as easily and is seen and measured as quickly. Right?

Derek: 17:33

Yeah. I I think it's, it's maybe a, a proxy for good management. Mhmm. The the other thing that I I think about, and and maybe talk about this for a minute, is, is the other it's kind of the carrot and the stick. So we've been talking a lot about the carrots and how they only work to some point, but if you think about maybe accountability as the stick, you know, you can have a good system where people know where they fit and do the work, or you can try and whack them when they step outside the line with some sort of accountability.

Derek: 18:14

I don't know that accountability, I think sometimes accountability is also a substitute for a good system. And by accountability, I mean, let's, let's figure out who we can blame when stuff goes wrong, or or micromanage the, the individual steps when what we really need to do is see to the results of the system. What are your thoughts on that?

Dave: 18:37

As I hear you speak of this, I still go back to my my, concept of a mindset of getting. It it's to me, it still sounds like, viewing the people component of a system as just one of the other resources, and resources from the perspective of, you know, like machinery, which which screw do I need to tighten for it to work more efficiently or or or better or consistently, etcetera. It's it's coming from that same sort of what can I do to it, what can I get from it, and just viewing people as our resource, which when you said to Dave, Dave, I know you have opinions on human resources? Well, just that name, human resources, kinda sometimes makes my hair stand on ends as well because I did really start my career many moons ago with this naive concept that that that was all about the people, but it doesn't appear to be.

Derek: 19:54

Yeah. When when I think about, essential dynamics and the and the purpose and the path and the people, For the first little while, I thought anything human resources related was in the people part, and as I thought it through more, I realized that anything in the human resources department part is a hundred percent in the system.

Dave: 20:13

Exactly.

Derek: 20:14

And that the people the people is another consideration, and I don't know if you can systematize, the approach to people, but it's, treating treating people as a machine that need to be adjusted is, is not the way I wanna be thinking about people.

Dave: 20:32

And you ask where did that come from? Well, maybe part of that comes from in in the educating of leaders and managers and, you know, your your education. You kinda learn things this way. Wouldn't you say that, in more recent times and some of it, dare I say the five letter word COVID, but it shifted a whole bunch of things, and people got a different flavor of how they might be able to do their work and then started to make way more noise about what's important to them and how they can still belong and be a part of something and and and really engage in a specific purpose, but do it in this different way, in a way that really maximizes their return as a component, an essential element of the entire system, But speaking to what really is important to them and that they're not just a resource, they're not a piece of equipment.

Dave: 21:37

I can't argue with that because I you know what? We're hopeful for the contrary view, but that

Derek: 21:41

You don't just have to argue this. You can enlighten. No. Okay. So so, I'll I'll put a little little survey here as we wind up.

Derek: 21:55

Dave, have you been treated as a resource in the past?

Dave: 21:58

Oh, Oh, through the career?

Derek: 22:00

Oh, absolutely.

Dave: 22:01

Yeah. Well and or at least the perception from being the worker of what management is doing towards me is, yes, I'm being treated as a resource because of, you know, the simplicity of, well, let's just put in an individual performance measure instead of, you know, let's give them the autonomy, let's give them the picture, let's let them contribute to the to the greater good here. Nope. Stay in your lane. Do your do your task.

Dave: 22:26

And it's, yeah, it's a reflection from what those are putting on you or pushing down towards you.

Derek: 22:36

Yeah. And and you could be a robot at that point in terms of the the latitude you're given.

Dave: 22:43

Yeah, exactly. And it feels like that occasionally has been the expectation of management along the way, right?

Derek: 22:48

Yeah. Yeah. So Tiz and I started, you know, we first several years of our formative formative years is our career as, auditors at big accounting firms. Talk about feeling like a cog in the wheel, hey, Tiz.

Dave: 23:05

Absolutely. That's a machine that I didn't even wake up to until I was in it, that it was just a machine to get you through, yeah, the various steps of of your defined development, and then on you go. I felt like part of the production line.

Derek: 23:25

So so there was a there was a win win in there. You know, and the way I looked at it is I get to learn about companies and how and, you know, they have they have to answer my questions. Yeah. But whenever I thought about, yeah, sort of the the whole process, it didn't seem it didn't feel very human. And, I don't know that and it so here's the thing.

Derek: 23:50

Since then, I've only really been involved in knowledge work. Mhmm. And my boss has never been able to tell me what to do. And in fact in fact, my boss has never known what I should do. When I was in management consulting, so after my early years at Pricewaterhouse, I very quickly got to a point where I had learned some things that my boss, you know, didn't know how to do.

Derek: 24:19

And then when I left to go into industry, and I'm the chief financial officer, well, my president wasn't the chief or financial officer.

Dave: 24:28

Yeah.

Derek: 24:29

Right? Like, I was expected to be the expert in that area, and so no one could tell me what to do, and there was no transactional human resource system that could ever, you know, deliver that. But I mean, I work with scientists and engineers and marketing people, creative people, you know, my whole career. And you you can't you can't be smart enough to tell them what to do. So you have to design systems that, that help them bring that, as I think Tizzy, you were saying at the beginning, like their best offering, their best self, their best value to bring that.

Derek: 25:05

And it's you're not you can't create a transactional system to do that, I guess, is, is my conclusion today. Any final thoughts?

Dave: 25:17

I like I have one little saying that I really like to kinda keep things in perspective. And when we are looking to make changes, organizations don't change. It's people that change. And so if we're looking for something to be better or different, I think the wisdom is in the people.

Derek: 25:44

The wisdom is in the people. That might be the title. I don't know. We'll see. If maybe it's the title for the next one.

Derek: 25:53

Dave and, Tiz, thanks very much for being on this podcast for the conversation. Our time's up. I'd just like to highlight that, all three of us work at Unconstrained. Unconstrained supports the, or brings the Essential Dynamics podcast to the world. And you can find us at getunconstrained.com.

Derek: 26:14

I'd like to thank Bryn Griffiths for his, help in making us, as we like to say, sound better than we look. And, really excited for this conversation about this angle on the Epic Quest. And so until next time, consider your quest.