Do Your Company’s Incentives Reward Bad Behavior?

The current lull in the sparring between General Motors and Congress provides a great opportunity to look at what wasn’t discussed in the furor over the company’s recent recalls and its admitted slip-ups in auto safety: namely, rewards and punishments.

For example, during CEO Mary Barra’s testimony in Washington, few lawmakers seemed interested in exactly how GM plans to change its processes, and Barra, while acknowledging that the company needs to improve safety procedures, made it clear that the company won’t share the data from its internal investigation of ignition-switch defects.

But Barra, as well as Congress and everyone who drives a GM vehicle, should be more curious about which behaviors in the deepest layers of the company are being rewarded and punished.

A report by former federal prosecutor Anton R. Valukas provides a hint: Although managers’ bonuses are based partly on vehicle-quality improvements, and safety is supposed to be paramount, cost is “everything” at GM, and the company’s atmosphere probably discouraged individuals from raising safety concerns. Earlier this summer, a former GM manager described a workplace in which the mention of any problems was unacceptable.

It should go without saying that the best way to get the behaviors you want is to provide rewards for doing them, or at least refrain from punishing people for doing them. The flip side is that you have to make sure you’re not inadvertently providing rewards for behaviors you’re trying to discourage.

In order to properly align its incentives to support its mission and objectives, a company must determine what managers and employees believe they are being encouraged to do and not do. Collecting this information is a three-step process.

First, make a list of behaviors you want more of and a list of behaviors you don’t want. The importance of responding honestly to this assignment cannot be overstated. For example, you may say you want a culture of quality, safety, and transparency, but do you really? Or do you believe that this is an unattainable, unaffordable goal in view of the financial and operational challenges your organization currently faces?

Next, make a list of the behaviors you are currently measuring. Don’t concern yourself at this point with whether your measurements are objective or subjective or whether they’re included in your annual performance reviews. Then compare each of the behaviors on your “more of” and “less of” lists to the list of behaviors you’re currently measuring. Put a circle around the behaviors you are not now measuring. This is your danger list! If a behavior you care about is not being measured:

• Your employees are likely to conclude that it isn’t very important, and will act accordingly.
• You aren’t able to provide skills training (in cases where the problem results from poor skills rather than low motivation).
• You aren’t able to provide feedback about the behavior, either informally or in performance reviews, so how can people improve their performance even if they want to?
• You aren’t able to reward the people who are doing what you want. Nor can you penalize people who are not doing what you want.

Some people will do what you want anyway, for personal reasons, but effective leaders create cultures that inspire and motivate people to do the right things. Effective leaders don’t sit idly by while hoping their people will behave ethically and perform competently. And they most certainly do not create or permit the existence of cultures that encourage and reward bad behavior.

Once you have ascertained that the behaviors you care about are being measured and discussed in performance reviews, the third step is to determine whether your rewards and penalties support your espoused values. Specifically, with regard to each item on your “more of” and “less of” lists, ask your employees what would be most likely to happen to them if they engaged in that behavior. Offer four possible answers: “I’d be rewarded or approved,” “I’d be punished or discouraged in some way,” “There would be no reaction of any kind,” or “I wouldn’t know what to expect.”

If GM were to engage in this exercise it would be important for the company to look at the fit between its incentives and its long-term goals — particularly those relating to such desired “more of” behaviors as preventing the types of errors that caused the ignition-switch crisis, behaviors aimed at early detection of errors, and behaviors aimed at immediate communication of any errors that are discovered.

Does GM’s reward system dispense incentives for cost controls even to the detriment of product safety? Does it discourage employees from acting on their awareness of problems? These are important questions that senior management should be investigating.

It’s important, also, for companies to take note of the organizational level of each respondent in its surveys. Research shows that employee perceptions of rewards systems tend to degrade as you go lower in the organization. People in executive positions are more likely than those at the bottom to feel they’d be rewarded, or at least not punished, for raising uncomfortable issues.

But even at the top, it can be difficult to speak up. At GE, Jack Welch sincerely wanted to hear the truth — he hated it when people brought him sugar-coated information. Yet when managers described systems going awry or other kinds of problems, his disappointment, frustration, and rapid-fire, penetrating questions could be quite intimidating.

The few public discussions about GM’s internal processes around quality have been vague and tinged with the language of moral breakdown. Barra told GM shareholders that employees are nowpledging to be vigilant. Jesse Jackson, addressing the board, said “we are in this crisis because of a lack of integrity and courage.”

But Jackson’s assertion seems to me to inaccurately define the problem. If GM desires a culture that gives priority to such things as product quality, safety, transparency, and integrity, why is courage required to behave in ways that are consistent with these values? Shouldn’t it be the other way around? Surely it doesn’t require courage to give one’s boss, senior management, and the CEO what they truly want.

Harvard Business Review