Thursday, June 24, 2010

When Money Motivates

A website that has caught our attention is called “Nudge” whose focus is on improving decisions and “choice architecture”. A June 1, 2010 post titled “When Money Motivates Employees and When It Doesn’t” includes some material that bears on issues of safety culture and safety management. The post is actually a video animated presentation and runs about 11 minutes.

As is common in the business world, and increasingly in the nuclear generation business, incentives are part of many employees’ compensation packages, and in the case of senior management can be quite substantial. Incentives can be cash bonuses, stock participation awards, or similar. Incentives are tied to the achievement of certain specified performance objectives that can target broad corporate level metrics as well as more specific ones associated with a manager’s responsibilities, e.g., plant capacity factor and budget. Safety performance metrics may or may not be explicitly part of the incentive program; safety may be viewed as an absolute performance requirement and sometimes as a condition precedent to access other performance incentives.

So, as the Nudge post asks, do money incentives provide an appropriate motivation for employees? Their short answer is only under certain limited circumstances. If an employee’s responsibilities are relatively simple and straightforward, involving mechanical skills or rudimentary cognitive skills, more reward leads to more performance. On the other hand if complex or sophisticated cognitive skills or creative thinking is required, then not only is the direct connection lost, the reverse may even be true - the incentive results in poorer performance.

Now this is social “science” theory put forward by a team of economists and sociologists and appears to be a “neat” formulation. But it is a little hard to judge the validity of the findings as only minimal information regarding the studies is provided. The authors claim that many, many similar studies come to similar conclusions, so the body of research may in fact be persuasive. I would have to say that my own experience is not necessarily consistent with these findings. Incentives can be a powerful driver of results - albeit often limited to the specific results targeted by the incentives - leading to unintended consequences in other performance areas that are not targeted or that may get sacrificed in the pursuit of the targeted goals.

This leads to what I found to be the more interesting observation from the “Money Motivates” post: the researchers believe the best approach is to pay people enough to effectively “take money off the table”, allowing them to balance all relevant job priorities. The researchers concluded that people are basically “purpose maximizers” meaning that we are motivated to achieve the overarching goals and purpose of our jobs. Problems arise when purpose and profit motives are not aligned or profit is paramount. Where safety is a vital component of purpose, it is possible to see where incentives can lead to compromises.

What is interesting to us is the intersection of incentives and the related issue of competing priorities and pressures on nuclear managers when balancing safety and other business objectives. Incentives are really just a different form of pressure, individualized to personal success and gain. Are there implications for nuclear safety management? How common are incentives for nuclear managers and what specific performance goals are targeted? How does safety performance factor in and is there the potential for safety and incentives not to be aligned? Has there been any assessment of the impact of incentives in cases where safety culture problems have occurred?

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