Wednesday, October 31, 2007

Big incentives lead to poor performance

The Yerkes-Dobson effect, according to Stumbling and Mumbling, takes the position that big incentives lead to poor performance.
Clearly Stan O'Neal at Merrill's has suffered from this - give someone a $160m pay-off. He only managed to lose $8billion, but the incentives at Northern Rock clearly led to it's demise demise. £30 odd billion and counting.
But probably the most notable area of the truism is on the football field.
Some years ago, Glasgow Rangers had a star-studded team of international players, all on huge bonuses to win. Celtic had a team of young hopefuls who had been brought up in their own programme. Who won? Celtic.
Now arguably the manager has a great deal to do with this - why are Man U perennially successful and why is Martin O'Neill destined to lead them to even greater heights after Fergie goes? That said, the Celtic side of 1988 ( it's 100th year) under a manager of no great ability ( Billy O'Neill) won everything. Why?
O'Neill was only there the one year. But he had been a great Celtic player, one of the Lisbon Lions. What he instilled into the players was the guts and determination to play " for the jersey". No other manager could have done that in quite the same way. Time and again during the season it looked as if they couldn't make it. Time and again, they upped their performance to make it happen.
Why is Stephen Gerrard such an inspiration? He IS Liverpool. He plays " for the jersey"
So the next time you are thinking about " incentivising" your crew, think about getting them to play " for the jersey" and for the love of it.
They'll do much better than their highly paid opponents.
Then take them out for a Chinese meal afterwards as a reward.


Winchester whisperer said...

Quite right, KL. Incentives are fine as long as they have been well-thought out beforehand. Look what a disaster they've been in the NHS regarding operations, waiting lists etc.

Katie said...

Quite a well known phenomenon in behavioural economics. Studies looking at philanthropy and giving blood and how it changes when you instill tax breaks and payments. Also, see out of hours care for doctors. As long as there was no system in place, doctors being kind hearted people made it happen. Now that there are procedures and payments, they don't.