Those familiar with Freakonomics will likely recall one of the pivotal observations delved into about human behaviour: people’s actions are greatly, if not primarily, influenced by incentives.
This caveat is revisited in the new issue of Psychology Today. A major article discusses the links between human motivation and incentives which may be laid, sometimes waylaid, in its path.
An infamous example from 2011 is profiled: the case of Wells Fargo employees, incentivized by a combination of compensation and continued employment, who acted unethically by opening fictitious bank and credit card accounts. The direct catalyst for this behavior was the coupling of compensation and employment with ‘steep sales targets’.
For those of use who have been in sales related positions, being responsible for some degree of targets is pretty much a given. Often, luck and hard work result in our attaining the challenging levels; if not, the consequences, unless on a probation period, tend not to be so quickly dire. While this may involve at times skirting ‘the rules’, as long as the bounds of ethics are adhered to, some latitude in achieving the desired results tends to be given.
In the Wells Fargo case, ethical boundaries were pretty much erased: after their field of new and existing legitimate accounts was harvested, some employees sought to meet their goals by enticing “tractable clients to open separate accounts for groceries, pet care, and birthday parties”, or even getting family members to open ‘ghost accounts’ before lapsing into outright fraud. The stress toll on employees led to some desperate reactions, such as actually drinking alcohol-based hand sanitizers.
After the scandal was exposed last year, not only was the bank severely fined and ordered to pay over $2.5 million (U.S.). in restitution, thousands of sales people were fired, while business fell significantly. Moreover, the bank hardly even profited from the activities, due to the preponderance of sham accounts. Almost textbook karma!
The prime lesson is that incentives can backfire. “Poorly thought-out incentives…designed to spur workers to do their best can push them to do their worst.” This ties directly into a reality of human behaviour: if goals are perceived as unrealistic, but can achieved by cheating, then many will cheat. The incentive becomes an excuse for deception.
So, what sort of sociological behaviour triggers incentives? When too few of us are willing to act in socially desirable ways, policies may be instituted using incentives. The ongoing challenge “is determining whether, and under what conditions, people will respond to economic incentives – bonuses, tax rebates – or to social pressure – tangible or intangible reminders to follow social norms”.
Unfortunately, sometimes these determinations are instinctively wrong.
Insofar as economic incentives, “there are some problems for which we cannot devise prices that will get people, if they’re entirely selfish, to do the right thing”. For some, moral instincts may be ‘sidelined’ by “replacing them with financial calculations”. This ‘crowding out’ sensation is so strong it has been found in toddlers.
Furthermore, there are some people so altruistic that their commitment to a cause may be reduced if offered an incentive. ‘Intrinsically motivated’ professionals may be distracted by incentives introduced which assist them with goals which are not their profession’s focus.
The use of money as incentive reward has its own issues. A monetary offer automatically ups the stakes – which, if involving a friendship, might otherwise have been steaks – into an ‘exchange relationship’. The latter is normally more comfortable in a non-personal transaction. In this situation, though, money can still serve murkily: if the sum of money offered seems too much, to be out-of-whack with expectation for the transaction, suspicions may arise to thwart the deal.
Putting in incentives changes how people perceive an issue; the brain’s focus on social reward shifts gears to one of cost-benefit analysis. Happily, this can be tempered by an aspect of our social fabric: opportunity “to be seen by peers as someone who does the right thing can be a powerful incentive”.
Hopefully, we have a sufficient number of actual or perceived peers, or can act without the presence of peers, to encourage us, incentivized or not, to keep trying to do the right thing.