Aligned Incentives Model

Aligned Incentives Model

– How we use our hidden motives to the benefit of the organization

First – premises

We’re basically monkeys with shoes, from an evolutionary and biological perspective at least. The modern human is shaped by Natural Selection under conditions of the African Savannah, hunting and gathering of food, in groups of 150 individuals. Neurologically and psychologically we are still pretty much the same.

There are five core drives that govern human behaviour:
– A drive to aquire (things, power, status)
– A drive to bond (to be liked, to cooperate)
– A drive to comprehend (satisfy ones curiosity, to learn)
– A drive to defend (our identity, our group)
– A drive to feel (emotional experience, excitement)

 

Would you be surprised to learn that our motives aren’t perfectly aligned with the success of the organization?

How to bring people to change behaviour

One of the most notable psychologists of our time – Daniel Kahneman (Nobel Prize in 2002) – reasons about changing peoples behavior:
“The basic idea of applied psychology is from Kurt Lewin: if we want people to change, how do we make it easy? (and not focus on monetary subsidies). Kurt Lewin said: if you want to get people to change, ask why aren’t people behaving in ways we or they themselves want? What are the obstacles? And then we need to try to eliminate those obstacles and remove the barriers.”

 

This seems simple and self-evident, but why is removing obstacles instead of adding pressure or incentives so counter-intuitive? Kahneman mentioned the three usual ways we try to induce change:
”- Arguing
– Promising
– Threatening
These techniques often fail because we are simply increasing tension rather than easing tension by removing barriers that make behavior change easy.”

 

This is a profound insight, and applied to reality a potent tool for managing people. What are the barriers for people to change to the desired behaviour?

Original observation

I have noticed over the years that organizations and companies in growth seem to increase their sub-parts, like teams. A small team that grows over time will inevitably run into problems: inflexibilty, inefficiency, increased administration and overhead costs. Simultaneously the Team Leader’s status increases. So does seniority, prestige, influence, opportunity and recognition. Obviously leaders have strong incentives to grow their teams and to be in charge of large budgets.

That was what I noticed.

 

And the problematic relationship between status and cost is present at all levels in an organization, wherever there are people.

 

Would it be possible to incentivize leaders to the things that we want instead, like efficiency, collaboration, innovation?

Expand and generalize

Our hidden motives that work against an organization’s interest is a generalizable principle. Regardless of what we subconsciously value in other people – e.g. prestigious responsibility, smart presentations, forcefulness, extroversion, superficial competence, well-connectedness – nothing guarantees that those things push us in the right direction. They most certainly don’t.

 

One crucial key is the awareness, knowledge and comprehension of these things. The knowledge cannot be aquired by merely guessing or even asking people; they frankly don’t know. We must turn to the scientific experts in the field of psychology, sociology and organization. This is important; we must not rely on pseudo-scientific management trends with weak or non-existent evidence in order to get these things right.

 

Once we have a well-founded idea of what really drives us, we can start to build incentives that support the organization’s interest of efficiency, flexibility, optimized cost, speed and innovation. This idea would be applicable to a diverse range of areas, wherever humans are involved: individual behaviour and performance, teams, meta management, decisions and judgement on all levels, governance, staffing and atrition, cooperation, etc.

Solution

In any organization, combining the idea of hidden motives and incentives with the idea of removing barriers:
– We should implement incentives that support what we want: efficiency, flexibility, optimized costs, speed and innovation.
– We should find disincentives that prevent increased costs, inefficiency, inflexibility and inertness.
– Where possible, we should focus on making it easy for people to do right instead of applying pressure.

 

Aligned Incentives Model

1. Choose problem area and specify it
2. Which incentives govern current situation? Analyse
3. From the core human drives, which incentives can we implement?
4. Which barriers can we remove?
5. Measure effect and follow up