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Incentives Are Not Enough

--by Barry Schwartz (Jun 01, 2009)


When you incentivize everything, you de-moralize it, you take the moral dimensions out of it.

Arguably, in the olden days, bankers wanted to make money, but they also wanted to serve clients and communities. What that means was that there was a certain way to proceed if you were a banker to make sure that people were not taking on more debt than they could handle, that people were putting away enough money so that when they retired they would be able to pay their mortgage and buy food and clothing ... Nobody thinks that way anymore.

When you rely on incentives, you undermine virtues. Then when you discover that you actually need people who want to do the right thing, those people don't exist because you've crushed anyone's desire to do the right thing with all these incentives. And if you bring in a new set of people to replace them -- virtuous, moral people who want to do the right thing -- and they're subjected to the same set of incentives, they're going to become just like the people they replaced.

I'm not talking about getting rid of incentives; people have to make a living. But people need to understand that rules and incentives aren't enough.... The more rules and incentives you have, the less wisdom you will have. There needs to be room left on the one hand to nurture in people the desire to do the right thing and on the other hand to give them the tools so that they'll know what the right thing is. This incredible pressure to increase payoffs is an obstacle to doing the right thing. You will never be able to create a system of incentives that rewards people for doing the right thing. The system of incentives may start out that way, but very quickly clever people will find ways to ... game it.

I think the first step toward achieving [a solution] is appreciating that the tools we currently use are not sufficient.... The step after that is to identify and acknowledge the existence of moral exemplars – if you like, moral heroes -- that the people you're training can aspire to emulate. And they don't have to be people who do extraordinary things. There are people who do small things that count as moral heroes. And then giving the people you're training the room both to improvise and to have room in their lives for wanting to do the right thing and not just the profitable thing.

--Barry Schwartz, on Practical Wisdom


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8 Previous Reflections:

 
On Feb 7, 2012 Patrick wrote:

I agree that incentives are not enough, but I also think the author's statements regarding incentives are too sweeping and simplistic.  Incentives can also reinforce virtues and positive behaviors amongst groups of people working for a common purpose.  Organizations theoretically use incentive and reward programs to help them get where they are going, i.e. to succeed.  These programs need to be congruent with the organization's vision, mission, values and current priorities.  Alignment is critical.  When it exists it very much aids organizational clarity and communication, which serves both the organization and its employees.  When an employee disagrees with his organization's vision, mission and/or values and cannot make his objections known or effect constructive change, he&  See full.

I agree that incentives are not enough, but I also think the author's statements regarding incentives are too sweeping and simplistic.  Incentives can also reinforce virtues and positive behaviors amongst groups of people working for a common purpose. 

Organizations theoretically use incentive and reward programs to help them get where they are going, i.e. to succeed.  These programs need to be congruent with the organization's vision, mission, values and current priorities.  Alignment is critical.  When it exists it very much aids organizational clarity and communication, which serves both the organization and its employees.  When an employee disagrees with his organization's vision, mission and/or values and cannot make his objections known or effect constructive change, he needs to get out and go somewhere where great mutuality of purpose exists.  If, because of financial necessity, he does not get out, he is a new type of slave for however long his unhappy relationship with that organization exists.

As a society, we have, broadly speaking, confused money with meaning.  Indeed, for too many of us money is the arbiter of meaning, when in fact money should be the servant of what is meaningful.  We have arrived at this situation courtesy of capitalism's triumph over democracy.  The American notion of checks and balances has failed to maintain the balance between a free marketplace and democratic ideals.   

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On Feb 7, 2012 kenny wrote:
 Thoughts on doing the right thing for the right reasons.

On Jun 2, 2009 Richard Shotz wrote:

Doing the right thing and the profitable thing are not necessarily mutually exclusive.

Also, fortunately, when you say "nobody thinks that way anymore" when referring to the responsible behavior of bankers of old you are utterly mistaken. 



On Jun 2, 2009 pavit raj wrote:

the best part of the story was its closure towards the reality of the society and getting rid offf from the perception and pre-concieve notions. It is very important to draw your own principles and stand on those principles.



On Jun 2, 2009 Patsy wrote:

I must agree with Frank; but, here is a thought:

As a society, we get off-track when we lose sight of REALITY. For example, over the last couple of decades, a large percentage of those who achieved the best scores in college took jobs in money management. Arguably, a money manager doesn't DO anything real. They do not invent, produce, or distribute goods. They don't provide a service other than to manipulate money. Since money is an artificial construct (albeit a necessary one) this allowed a disproportionate concentration of talent to be used in a non-real endeveaor. The results of this are now quite plain.

When it becomes more "economical" to waste than to conserve, when it makes "sense" to sacrifice the future for expediency in the present, when we accept damaging and illogical ideas as a result of an emphasis on non-reality based constructs, we doom ourselves to failure as a society and as a species.



On Jun 2, 2009 Frank wrote:

What a poorly-focussed and weakly-reasoned piece. But I need to be brief. You clearly mean FINANCIAL incentives but fail to make that clear. Our whole human endeavour is based in incentivisation of one sort or another, but it's not always financial. The 'right thing' is a cultural-specific construct but maybe your message is only targetted to the developed-world and the current economic failures and problems. Your view of a bank manager's responsibility makes it sound like we always need a parent to look after us. Referencing 'moral heroes' - Bottom Line, People want to identify with and emulate those who achieve big, almost spectacular feats. Those big achievers are the people we should be pointing to and getting moral leadership from. We all know a moral hero and admire what they do and the effort they expend but that does not necessarily encourage us to follow their example. This is an area where we should be encouraging, shaming, incentivising(?) economically successful entrepre  See full.

What a poorly-focussed and weakly-reasoned piece. But I need to be brief.

You clearly mean FINANCIAL incentives but fail to make that clear. Our whole human endeavour is based in incentivisation of one sort or another, but it's not always financial. The 'right thing' is a cultural-specific construct but maybe your message is only targetted to the developed-world and the current economic failures and problems.

Your view of a bank manager's responsibility makes it sound like we always need a parent to look after us.

Referencing 'moral heroes' - Bottom Line, People want to identify with and emulate those who achieve big, almost spectacular feats. Those big achievers are the people we should be pointing to and getting moral leadership from. We all know a moral hero and admire what they do and the effort they expend but that does not necessarily encourage us to follow their example. This is an area where we should be encouraging, shaming, incentivising(?) economically successful entrepreneurs to accept the responsibility for setting a moral, as well as economic, authority.

Sorry, but you need clearer thought and expression here.

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On Jun 2, 2009 marion barnett wrote:

We have forgotten about authenticity... about bringing ourselves, and our beliefs, to what we do.  So much is lost when we do what we are told to do, without thinking if it is appropriate...  Somehow we need to turn away from sell, sell, sell...

 



On Jun 2, 2009 Nana wrote:

Isn't this a good commentary on our educational system?  When we start with incentives, rather than virtues from kindergarten onward, we should not be surprised at the results.