Dan and Chip Heath of Made to Stick fame have a brilliant column in this month's Fast Company, called Why Incentives are Irresistible, Effective, and Likely to Backfire. I've written about perverse incentives here and here, and how part of the problem with them is that they sometimes work to well, as people focus on doing the thing they are paid for at the expense of all else. With Merrill Lynch's bonus system so much in the news, it is interesting that the Heath's use an example from an older book about Merrill to show the downside of how yearly bonuses were handed out. If this little snippet is a reflection of their culture and work practices, it may also help explain why executives who grew up in this system suffer from tunnel vision – this strikes me as a powerful way to breed a narrow and self-centered world view.
Don't miss the rest of Heath's article, but here is the little gem of a paragraph that inspired this post:
"Take Merrill Lynch. In the book Riding the Bull, author Paul
Stiles describes his experience as a new trader at the venerable
investment bank. Merrill wanted Stiles, then 29, to trade complex
international bonds in volatile markets. He tried asking advice of the
seasoned traders, but they ignored him — a minute spent helping Stiles
was a minute spent not adding to their monthly bonuses. They kept
barking into their phones for hours at a time and yelled at Stiles
every time his shadow fell across their computer screens. Eventually,
Stiles was reduced to silently observing their behavior from a
distance, like a rogue MBA anthropologist. It surely never dawned on
the person who set up Merrill Lynch's incentive system that the
traders' bonuses would make training new employees impossible."
This story also reminds me of related research that shows when people just think more about money, they are less likely to give help, ask for help, and put more physical distance between themselves and others.
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