Building Healthy Organizational Incentives

Incentives are everywhere: our workplaces, our homes, our communities.

As leaders, when we understand what’s driving decisions, we can effectively guide teams towards outcomes that are good for the organization and customers.

What are the types of incentives?

Incentives come in two types: implicit and explicit.

Explicit incentives are those which are publicly recognized by the organization and often touted by leadership. (i.e. promotions, awards, OKRs, goals, etc.)

Implicit incentives are the “unspoken” pressures about how the organization works. (i.e. people who “know the culture” don’t schedule meetings before 10am, the local school fines you if you pick up your kid after 4:30pm, if you spend too much time fixing bugs you’ll never get promoted, etc.)

Of note — both explicit and implicit incentives are neutral entities. An explicit incentive isn’t better or worse than an implicit one. Trying to eliminate implicit incentives isn’t realistic or always desirable — instead the focus should be on alignment between the two. Healthy organizations have explicit incentives that are reinforced by the implicit ones.

How do I build healthy incentives in my organization?

Part one: Assess current state.

Think of the incentives inside your organization as an iceberg. There’s much more to consider than meets the eye.

To begin, start with the part of the iceberg that’s visible. Practically, this means determining the strength and clarity of your team’s mission and vision.

Humans enjoy working. People don’t come to work every day for the paycheck; they want to build things and help people. Your mission and vision is the strongest tool you possess to help people find meaning in their work.

However, it’s possible — due to lack of clarity — that your teams may not feel that their work is connected to the organization’s mission. Even worse, they may not know the mission or how it intends to support customers.

So get clear on how your mission and vision are working. Try a few of the following:
- At your next team meeting or all hands, ask each team member to complete the following sentence: My work is connected to the mission of our team because…
- Ask managers to articulate how their teams’ goals/projects are connected to the team mission at a leadership meeting. Share the results with the organization for feedback.
- Include questions in your engagement surveys that ask participants to rate the clarity of the connection between their day to day work and the organization/team’s mission.

If people cannot connect their work to the mission and vision of the organization, stop reading and use this as your starting point! Other incentives in the organization, while important, will not pack the punch of an effective, clear mission and vision that’s widely understood across the organization.

However, if teams are clear on the mission and vision, dive below the surface of the water and continue exploring. The following questions can be used to uncover implicit incentives that may be lurking out of view. (Pro tip! If you are a very senior leader on the team, you may want to share this task with an influential manager or team member so you get more of the “real story.”)

Part two: Identify existing incentives that support the culture you want.

Once you’re clear on the incentives that exist across the organization, determine which existing incentives (both implicit and explicit) support the cultural change you’re trying to build. From this list, choose a few (2 or 3) to focus on.

Part three: Emphasize and focus on a few (2–3) healthy incentives.

Once you’ve found some healthy incentives, start talking about them! Mention them at team meetings, spotlight them in communications, and have managers reinforce their value in 1:1s. Some specific examples include: Adding a recognition section to your team newsletter, adjusting career pathing and promotion documentation, telling stories about these successes as a regular segment during recurring team meetings.

Of note, attempting to extinguish existing incentives by brute force rarely works (i.e. training, telling, mandates, policies, emails). Instead, you want to strengthen the power of the desirable incentives so that undesirable ones slowly die off. While this might seem inefficient on the surface, it’s the fastest way to guide group behavior over extended periods of time.

Little by little, the culture will start to shift. Celebrate each win, and slowly expand the scope of healthy incentives. You got this!

Are there any other tips when considering organizational incentives?

1. Don’t create lots of new incentives.
You’re leading cultural change. You have ideas! After assessing the incentives that are currently in place, you’ve decided to build an entirely new set of incentives. You’ll “roll these out” and everything will be cool, right?

Not so fast. Remember, incentives are things that develop over time, both intentionally and organically. When beginning this work, you’ll experience much greater success if you emphasize incentives already in place rather than trying to supplant old habits with new ones.

The Heath Brothers often call this “growing the bright spots.”

2. Maintain and sustain the work over time. Don’t “finish” it.
The alignment of implicit and explicit incentives is work that’s never finished. Think of this work like weeding a garden. It requires regular maintenance and care.

Some things you can do to “weed your garden” are:
- Create regular communication structures about the topic. 
 — Steering committees
 — Slack Channels
 — Regular reflections from managers on the topic

- Determine change control procedures
 — Slow down the change by taking ideas for change through a change review process 
 — Build a public log of ideas and note what happened to each of them

- Develop a regular engagement assessment to check the team’s pulse

3. Consider many of types of rewards, not just monetary ones.
Remember, money is only one small part of the reason that people come to work. Extrinsic incentives — like a bonus — only provide short term motivation. Use extrinsic rewards carefully and ensure you’re providing them for the right kind of work.

Work that benefits most from extrinsic rewards are those that are repetitive tasks, not knowledge work.

For knowledge work, your best bet is to emphasize your mission and vision.

4. Be wary of emphasizing “single direction” incentives or goals.
Single direction incentives or goals can make it harder to achieve a healthy incentive environment. It’s unlikely that any incentive without a counterbalance will deliver the best long term outcomes for users or customers.

Instead of: Ship 2 new features this quarter.
Try: Ship 2 new features this quarter while keeping Median Time to Remediate (MTTR) below 35 minutes/incident and increasing customers by 5%.

Instead of: Close 3 large accounts.
Try: Close 3 large accounts while maintaining existing revenue to increase Annual Recurring Revenue (ARR) to 10 million dollars.

5. Be patient.
This work takes time. Be patient and keep at it. You got this!