Friday, April 16, 2010

How to Incent the Wrong Behavior

Story time…

Recently I called my satellite radio service provider to change my ongoing service. I had signed up to automatically renew the three units I had active at the time, but was no longer using one of the radios. I wanted to continue the service on two radios and cancel the third. Sounds simple, right?

The first time I called (about a month before my subscription would renew) I was told that I should call back a month later. The representative at the service center was clearly reading from a script, and no matter what I said including, “I’d like to speak a manager,” I couldn’t get her to assure me that it had been canceled. In fact, I was pretty sure it wasn’t.

So I called back a few days before the renewal date. This time the service rep understood my request, and said she would need to send me to a special center. (Okay, we’re getting somewhere.) The special center turned out to be a sales rep. Our conversation went something like this:

Sales rep: “I understand you’d like to cancel your service.”
Me: “No, I just want to cancel one of the three radios. I’d like to keep the other two active.”
Sales rep: “Why do you want to cancel?”
Me: “I’m not using it anymore.”
Sales rep: “I can offer you a 50% discount for one year.”
Me: “No thanks, I’m not using it.”
Sales rep: “Okay, I can give you a 50% discount on your other two radios for a year.”
Me (surprised): “Really? What’s the hook? Am I signing up for anything more than one year?”
Sales rep: “No, just something I can offer you today.”

I take the offer and run. Good for me. Bad for the service provider's bottom line.

So, what happened here? I was fully prepared to pay full price for service to the remaining two radios. It’s pretty clear to me that the sales rep was incented to keep customers. If I just canceled the one radio she would have been dinged for a ‘loss’. Instead, she was able to log this as a ‘save’, and was most likely compensated for that.

Ahhh… a perfect example of how to incent the wrong behavior.

Déjà vu, I’ve seen this before. I’ve seen sales reps sell a competitor’s product instead of their own company’s product because one unit (not the one who was responsible for that product’s P&L) decided to compensate the sales team more for it. I’ve seen sales reps offer a discount on pricing because a discretionary promotion was in place (that the rep was incented for), even when they could have sold it at the higher price.

It is truly amazing how an incentive can affect behavior. And it can get really messy when different stakeholders are competing to incent the sales teams.

Have you witnessed this too? What’s your story? Share your examples of incenting the wrong behavior with a comment here.


Derek Irvine said...

Great post and an excellent example of why (if/then) incentives rarely work to achieve the goal you had in mind. (After/that) Behavior-based recognition, on the other hand, that focuses on recognizing people who have already demonstrated behaviors and values you need from employees to meet your objectives -- that is a powerful way to say "good job" while only encouraging those positive actions/behaviors you've clearly defined as worthwhile and necessary.

For my on story in incenting the wrong things, pop over to my blog:

Colette said...

Derek, thanks for your comment. Yes, it truly is amazing how sometimes you get exactly what you ask for. Thanks for sharing your link!

Anonymous said...

Twice upon a time I have had stints in management. One of these times, I had a particular employee who I had recently promoted. As a result, he was now rated in the lower half of his new level. This employee wanted a transfer, and I had the ability to let him go. As well, given his experience, it made sense given his interests and the receiving manager’s mission. Honestly, I wasn’t trying to “deal from the bottom of the deck”. But the organization I was in was having a problem meeting its overall rating distribution goal. So I couldn’t transfer him as we needed his lower than average rating to make our goal. I could have easily transferred him is he was a better performer.

Colette said...

Anonymous, another great example! I too have experience the 'forced skew' in assessing employees. It not only incents the wrong behavior in the manager, but it affects the employee's self-esteem.

Rod Howard said...

I made Sales Manager of the Month by offering to warehouse a truck load of product for a customer who had a 6-month deployment schedule. Sales had no responsiblity for warehouse expense and I never saw the "bill". A year later the customer still had product sitting in my warehouse, which I told him to get long after the commission check was spent.

Colette said...

Rod, great example! Thanks for sharing.

Ann Best said...

Colette: Just met you through Karen G.'s blog. I like what I see on your blog and am bookmarking it to return to it later. I think I'll learn a lot from it (besides writing, I'm also interested in allergy free/healthy food). I don't have any direct comment about incenting, but it reminds me of the horrible hassle I had on the phone yesterday with Verizon employees (posted on my blog). Mainly I just wanted to introduce myself. I'm a writer who at almost age 70 has a contract for my autobiographical novel. I hope you'll drop by.

Colette said...

Ann, thanks so much for joining us here! I am thrilled to hear about your book news. Will check out your blog as well. Since you mentionned food allergies, you might want to check out my other blog where I focus on allergen-free food solutions. Welcome!

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