Fiscal Quarters subvert Leadership, Part 2

By: | Posted in: Industrial Era / Social Era | Saturday, Apr 9, 2011 - 9:41pm

If you haven’t already, you may want to watch the brief interview with Felix Salmon ( before reading this post.

13-week Time Horizons Create the Illusion of Engagement and Motivation
In late 1993, I was asked to take a position in the corporate Marketing function of the publishing firm I had been working for. I had just come off of 2 years overseeing the turnaround of 2 failing business units and had developed something of a reputation as an effective manager and, in an organization where employees tended to be high on the cynicism scale, as someone who seemed to have an ability to generate high levels of satisfaction and loyalty from my employees. At around the same time I was making the transition to my corporate role, an article was published by Alfie Kohn that instantly resonated with much of what I believed about how to run a business and engage employees. I immediately made dozens of copies and began distributing them to my new colleagues. Before I share their reaction, here is a very brief summary of the key points Kohn made in the article:

  1. Pay is not a motivator: When people are asked what matters most to their co-workers or those they supervise, pay ranks fifth or sixth. Frederick Herzberg, one of the central figures in motivation theory, nailed it when he said: “just because too little money can irritate and demotivate does not mean that more and more money will bring about increased satisfaction, much less increased motivation.”
  2. Rewards punish: Just as punishment destroys motivation and creates defiance, defensiveness, and rage, rewards “have a punitive effect because they, like punishment, are manipulative.” Employees feel controlled and resentful, and this is not conducive to exploration, learning, and progress.
  3. Rewards rupture relationships: “The surest way to destroy cooperation and, therefore, organizational excellence, is to force people to compete for rewards or recognition or to rank them against each other.” Also, our reward and incentive-based approach encourages employees to present themselves as competent and hide developmental needs and/or long-term problems from those in control of the money. “Very few things threaten an organization as much as a hoard of incentive-driven individuals trying to curry favor with the incentive dispenser.”
  4. Rewards ignore reasons: “Relying on incentives to boost productivity does nothing to address underlying problems and bring about meaningful change.” The dispensing of rewards based on achievement of narrow, prescribed outcomes fundamentally lets management off the hook from the deeper accountability of creating conditions in which every employee can make a significant contribution.
  5. Rewards discourage risk-taking: “When people are focused on what they will get if they accomplish a mission, they become less inclined to take risks or explore alternatives.” Thus, “the number one casualty of rewards is creativity.”
  6. Rewards undermine interest: People who do exceptional work do not work simply to collect a paycheck; they work because they love what they do. Extrinsic motivators, such as rewards, are poor substitutes for the intrinsic motivator, genuine interest in one’s job. “The more a manager stresses what an employee can earn for good work, the less interested that employee will be in the work itself.” Furthermore, the more employees feel controlled, the more they will tend to lose interest in what they are doing.

Kohn’s article was titled: Why Incentive Plans Cannot Work and it was followed by a book, Punished by Rewards. If you are in any way engaged in business, are a parent or are involved in education, Kohn’s work is must-read.

As you might have guessed, the reaction to my enthusiasm for Alfie’s work was cool at best; most of it was along the lines of a metaphorical pat on the head and a message of: ‘oh, you really don’t know how the world works do you’. Eighteen years later and we have yet to learn what Kohn has been pointing to. For the record, Kohn’s insights are backed by decades of research conducted in schools and business organizations and the conclusion is the same every single time: extrinsic rewards of any kind will, over time, destroy an individual’s inherent motivation for the work. What’s worse is that the greater the level of initial motivation, the greater the negative impact of rewards; i.e., the more you are rewarded for work that you have the most passion for, the more likely you are to lose your passion for it.

The obvious question here is: ‘well if that’s the case, why do we still rely so heavily on incentives?’ The answer is pretty simple: incentives WORK; however, they work in that they generate compliance for the short-term future. Remember that the work of Management is to generate control and predictability and, in the Industrial-era paradigm, incentives as a driver of compliance are quite a useful tool. Also note that the deteriorating effect that rewards have on motivation occur over time, they don’t show up over the course of a few weeks – or even months – but rather manifest slowly after successive cycles of engagement with rewards and incentives.

Which brings us to the title – and point – of this post: the emphasis on the fiscal quarter as the dominant unit of time in business ensures that the compliance-generating benefit of rewards is highlighted while the motivation-deteriorating effect of rewards is completely masked. This was fine when our central concern was ensuring that everyone ‘did their job’. However, as I have discussed in other posts, the economy that is emerging requires that everyone in your organization is actively and creatively engaged, that ‘doing their job’ is at best the beginning of the conversation about what it means to work for you. For this we need a philosophy of organization that has a longer attention span than 13 weeks and a deeper understanding of human motivation than the ‘do a trick and get a treat’ approach that we use on our pets.


*NOTE: given the structure of this site and the need for short posts, I am very much simplifying Kohn’s work. I strongly urge you to visit his site where you can find some well-written articles that will provide a richer insight into the conversation that I am opening up here.