Ep 452 | The Good and Bad of Incentives, and How to Use Them More Effectively

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. In today's episode, we're going to explore human behavior a bit, and we're going to look at it through the lens of incentives and through biases. This, uh, this thought, this art, this, this particular podcast was, uh, motivated or inspired by an article that I read on Farnam Street. Uh, the Farnam Street is a blog site and a company owned by a gentleman named Shane Parrish who's written a lot about mental models. But it's inspired by an article that Shane Parrish put out that was about bias from incentives and reinforcement. We're not only gonna discuss how incentives can shape our decisions, but also how they can be harnessed, how we could better leverage them, especially if we're running some form of sales business or sales team. So let's start with understanding incentive-caused bias. Incentive-caused bias. Incentive-caused bias occurs when our judgments and our actions are swayed by personal interests. This sort of bias can, can cloud our objectivity. It can lead us to make choices that prioritize short-term rewards over long-term goals. So for example, like in a, in a sales environment, focusing solely on the commissions you can make can create You know, some unhealthy competition can compromise collaboration amongst your salespeople. It could even incentivize unethical behavior like misrepresenting your service or overselling or whatever it may be. So, so if we focus solely on individual commissions, it can have some negative repercussions. Some real-world examples of misaligned incentives. How about the financial industry? Great industry, of course, but sometimes in the financial industry, advisors recommend products that offer higher commission rates to them. And that, you know, doesn't always take into account the client's needs. Uh, this sort of misaligned incentive can really damage trust and impact someone's financial future. I see this a lot. With insurance products, life insurance products specifically, very high commission products that may not make sense for the individuals being sold to. But because of the incentive that is the higher commission, people may be misled. How about in the medical field? Sometimes doctors can be influenced by pharmaceutical incentives. Maybe they prescribe an unnecessary treatment, or they, you know, take a specific action because they're incentivized by a pharmaceutical company to do so. I know that most doctors do not behave in this way, but there are documentaries and stories and movies based around this sort of thing. Not only that, there are major pharmaceutical companies that are facing or have faced massive repercussion because of the incentives and the ways in which they sold their products. And there's doctors that have been disbarred because the incentives provided and they took it and it shaped their behavior. And then when you underscore that behavior with reinforcement of the biased behaviors, there could be these— and there was in many circumstances— wide-ranging consequences. In sales teams, a sales rep might push a service they know isn't the best fit for a client because they're motivated to hit some sort of sales objective or quota rather than actually solving the client's problem. Over time, this could damage client relationships and it could, it could actually hurt your company's reputation. So you can see that there's misaligned incentives from time to time in the real world. And these are examples of the power of incentives and how they drive behavior both positively and in this case negatively. Now, since we're talking about incentives, we got to talk about reinforcement. Shane Parrish would tell you that reinforcement is a double-edged sword. Reinforcement plays a real crucial role in cementing these behaviors that, that we're talking about here with respect to what you want to get out of an incentive. When incentives yield rewards, be it like a financial gain or professional recognition, they reinforce the behavior. Which makes it more likely to repeat. So if I say, hey, your objective is to go get, you know, go have 10 sales this month, and when you do that, you get a $10,000 bonus, that is an act of reinforcement. So in a sales contact context, this sort of cycle can be beneficial, but it could also be destructive depending on how the incentives are structured. If it's done poorly, for example, it may lead to a culture of short-term thinking. It may lead to burnout. It could lead to unethical practices. But with the right design, of course, it can create a thriving, motivated team. So, let's talk about how best to utilize incentives, especially in like a sales team environment. I'm gonna give you some things to be thinking around as it pertains to incentives. Okay? Number 1, make sure that you align incentives with your, with your actual team goals, with your company goals. So structure incentives that reward behaviors that benefit both the individual as well as the organization as a whole. So, for example, reward repeat business rather than just one-time sales because this would foster some sort of long-term client relationship. Maybe offer bonuses for team performance that encourages collaboration. Rather than the traditional kind of cutthroat competition. So, how can you offer bonuses for team performance where the team's got to work together rather than pinning them all against one another? This would be aligning incentives with your team or your company goals. Number 2, I want you to focus on, as it pertains to incentives, focus on behaviors, not just the outcomes. So, incentives tied to key behaviors like problem solving or customer satisfaction or whatever it may be, they can lead to better long-term results. So for instance, maybe a sales team could earn points for completing client check-ins or resolving customer complaints or whatever it may be. They get points and there's some sort of point system. And if we reach a certain quantity of points, we all win. This would be an incentive based on behavior, not just outcome. Number 3, consider incorporating non-monetary rewards. Non-monetary rewards, those rewards that don't include dollars. So, maybe it's recognition, maybe it's career development opportunities, maybe it's just small tokens of appreciation. These things can be super powerful motivators. So, non-monetary rewards can reinforce this intrinsic motivation. Which creates a more engaged and a more loyal team. So, when you think about incentives, you don't always have to default to dollars. Think about other things like recognition or other tokens of appreciation. Number 4, avoid overemphasizing short-term gains in incentives. I think many of us are guilty of this. We have a tendency to want to change the direction something is going, and so we come up with an incentive that that immediately creates some sort of output. And while that may be necessary from time to time, I want to encourage you to avoid overemphasizing short-term gains. So when incentives are, are too focused on, say, monthly numbers or quarterly numbers, they can actually encourage shortcuts. And when you encourage shortcuts, you encourage some risky behavior. So instead, balance maybe your short-term goals with longer-term metrics like retention or client satisfaction. Lastly, as it pertains to incentives, create transparency and create accountability. Make sure that the team understands the incentive structure. Make sure they understand how it ties to broader goals. Transparent systems reduce suspicion. They reduce the gaming of the system. So make it transparent, create accountability. It's just 5 ways to think around incentives or how to use incentives to lead a team, specifically a sales team. And even if it's not a sales team, you can see elements of what you can do here because incentives should be used to align goals and drive sustainable success and not just for short-term benefit. Make sense? So in wrapping this up, I think we could all agree incentives are a pretty powerful tool, especially for leading an organization, leading a sales team. When you, when you do things thoughtfully, they could, they could motivate, they can align, they can inspire. But if you, but if you mess it up, if you have misaligned incentives, you could end up with bias, you could end up with conflict, you could even unintentionally harm your business. So as a leader, it's your job to design incentive systems that promote sustainable success. Success for the individual, success for your team, success for your company. So, my challenge for you today is to take a look at the incentives you may have in your company right now. Maybe a certain contest or something you're running and make sure that those incentives are truly aligned with where you want to see that business go, where you want to see that individual go. I also want to challenge you in analyzing your incentives. Are they long-term? Are we thinking in the long-term? Are we simply thinking in the short-term? Again, I think a good combination of these things. Makes a difference. And if you're not using any sort of incentives right now, especially since we're about to, you know, turn the year and there's this new energy, what opportunity exists for you to bake in some new incentives following the guidelines we provided here today? That's all I have for you today. The No Days Off Podcast. Thank you so much for listening. And remember, every single day brings a new opportunity to get better. So let's get after it. [MUSIC] [MUSIC]