What executives could learn from classroom study

Opinion: performance incentives are needless and unfair

“Anyone with the gumption to reach the boardroom has a grotesquely inflated drive to succeed far more powerful than a factory full of Gucci watches.” Photograph: Chris Ratcliffe/Bloomberg

“Anyone with the gumption to reach the boardroom has a grotesquely inflated drive to succeed far more powerful than a factory full of Gucci watches.” Photograph: Chris Ratcliffe/Bloomberg


Last week in the duty-free shop at Stansted airport, I was idly trying on sunglasses and wondering why so many had lenses the size of saucers when I overheard a conversation at the till behind me.

“He got 35 out of 35 in both English and mathematics,” a woman was saying to the shop assistant. “He knows that if he gains full marks, he gets a reward. It’s getting expensive – he’s so bright, he does it every year.”

“Wow, that’s a big reward,” the assistant said as she took the woman’s payment for a Gucci watch. The boy – who can’t have been more than 10 – gazed inscrutably at the watch, which looked enormous on his scrawny arm.

I watched with a curdling mixture of envy and disapproval. To get full marks in an exam is an alien experience in my household. Could the watch have caused it? I like to think it could not. To bribe children to perform in exams is not only vaguely distasteful, it is also, surely, pointless. Even if they aren’t motivated by the joy of the work itself, one hopes that they will try to do well either to keep up with Jones junior or because they realise it is in their interests to do so.

Using bribes

Not only needless, bribes are also unfair – to reward someone just because the two Shakespeare sonnets they happened to revise came up is not right.

And if you have several children, some of whom do well effortlessly while the others slog away to rather less effect, why should Gucci watches rain down only on the first group?

Yet the story of the boy, the watch and the beaming mother has made me have my doubts. My own motivational system is evidently not working terribly well: as I write this, my son is failing to settle down to revise for his maths GCSE despite a good deal of cajoling, raging and gnashing of teeth from me. It is a bit late in the day to change my system as he is my last child and his exams are – hallelujah – almost over. But the question is of broader interest, not just in schools but in offices.

Performance-related pay is no different to paying bribes for exam results: we bribe executives to maximise shareholder value in the same way that we pay children for A*s. And so if the system doesn’t work with kids, what chance of it working with more complex, ageing executives?

After a bit of digging, I found some research that settles the matter. A study from the University of Birmingham has collated many thousands of other studies, drawing on data of a million children from poor backgrounds.

The conclusion is that bribing kids to perform does, in fact, work – but only if it is done correctly.

It found that paying for top exam results was hopeless, because the kids didn’t generally know how to go about getting them. Instead, the bribes worked when they were for small, specific things, like turning up to school on time, reading a book or doing homework.

In other words, the bribes worked when they were not for achievement but for effort. This chimes with the view of most parents and teachers, which holds that rewarding effort encourages children to try harder, while rewarding achievement makes them feel there’s no point in trying.

So the mother was wrong.

Top marks

The watch did not cause her son’s top marks; indeed, next year she may have a problem on her hands if the brainbox only gets 34 out of 35.

The study also suggests the way we pay bonuses to top executives is flawed. There is no point paying chief executives to hit financial targets, as doing that is far more complicated than aceing an exam, given the number of uncertainties.

A recent article in Inc, the US magazine for entrepreneurs, argues that the new wisdom of the classroom should be extended to the workplace so that praise and bonuses should be given only for effort. Bosses should not say “brilliant report, you’re amazing”, but: “Great job, I can see you spent a lot of time on that!”.

This approach might work with very junior employees. But more senior ones are not like deprived kids at all.

To reward executives for working late or reading the briefing papers doesn’t seem quite right, especially given the size of their base salaries. And in companies, unlike in kindergartens, results matter a lot.

If I owned shares in an organisation where the price was tanking, I wouldn’t be remotely comforted to know that the chief executive was getting his full bonus for showing A for application.

The moral is what I’ve long suspected. Senior executives don’t need incentives at all. Anyone with the gumption to reach the boardroom has a grotesquely inflated drive to succeed far more powerful than a factory full of Gucci watches.

– (Copyright The Financial Times Limited 2014)

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