I have long been a fan of individual incentives in the right settings – namely for sales roles or transactional roles where the link between activity and output is clear. However individual incentives are often over-extended into scenarios where they are less effective under the simple assumption that “if we pay someone to do something, they are more likely to do it”.
I wrote previously about some of the issues with pay for individual performance ranging from decreased collaboration, to higher instances of depression, to reduced organizational productivity, to the high costs of administration. Here I want to focus more specifically on incentives and their effectiveness in driving problem-solving behaviors.
Enter “Duncker’s Candle”, or “The Candle Problem”, first conducted way back in 1945 by the German psychologist, Karl Duncker. Now, this experiment was not designed to address the issue of pay-for-performance, rather to demonstrate another barrier in problem solving known as “functional fixedness”. A very interesting experiment and, rather than regurgitate all the details here here, I recommend delving into the Wikipedia article.
This experiment has since been used many times in research studies as a measure of problem-solving capability. “But,” I hear you ask, “what do candles, boxes and thumbtacks have to do with pay-for-performance?!” Well that’s where things get really interesting after Sam Glucksberg repurposed this test in 1962.
Glucksberg took the candle problem and repeated the experiment. However, the crafty Canadian added financial incentives into the mix (same Wikipedia article if you would like to see the details). In a nutshell, one group (“low-drive”) was asked to solve the problem and told they were being evaluated on how long it would take, while a second group (“high-drive”) were offered ever-increasing financial incentives based on the speed in which they solved the problem.
So what happened next?
Well, if we assume incentives get quicker results, we might naturally assume that the high-drive group got there first. But this wouldn’t be an interesting blog at all if were true. In fact, the low-drive group were more effective at solving the problem more quickly.
In summary, adding a financial incentive meant that it took people longer to solve the problem!
There have been various psychological explanations put forward however Glucksberg himself, rather snappily, termed this “neobehavioristic drive theory”. In other words, the extra pressure that comes with the financial incentive, prolongs the dominance of ingrained habits reducing a person’s ability to think creatively.
So let’s think about what this means for incentives…
Well, some sales roles are fairly transactional and it still makes sense to align their behaviors with pay. But what about those more consultative sales roles? Solutions consultants, technical pre-sales, partnership sales reps, even mid-market SaaS roles all have a problem-solving element to them which may require creative thinking to find the most appropriate client solution. Gluksberg’s experiment tells us that individually incentivizing these roles could reduce the individual’s ability to arrive at the best solution, or even extend the time to close.
We can also extend this to corporate bonus plans that carry individual components. Individual metrics such as delivering projects, billing hours, achievement of milestones, or even voluntary turnover, are all essentially linking incentives with solving problems. Enlightened by Glucksberg, we now know that doing so may inadvertently work against their performance.
This doesn’t necessarily mean that there is no place for individual incentives when it comes to problem-solving roles, but it does tell us that we should be mindful of how we balance specific metrics with subjective or qualitative measures, how much financial weight we attach to them, and the cultural impact that such incentives have. We typically see this reflected in sales plan design in the form of pay mix, with less pay being put at risk for more consultative roles.
So if we can’t use incentives, how do we create better problem solvers?
I’d like to introduce another study by Andrew Oswald et al. in 2015, that evaluated the relationship between happiness and problem solving capability. In this study, one group were shown comedy clips before being asked to solve a problem, and one group were not. The first group were both subjectively happier, and better problem solvers than the second. In summary, happy people are better problem solvers.
There are other studies that support this but most of us know intuitively that there is a strong link between being happy and solving problems. How many of us, when under pressure, have sat trying to fix something for hours while the solution was staring us in the face from the beginning? Conversely doesn’t it feel so much easier to get our jobs done when we are in a good mood?
It works in the other direction too – Can anyone deny the tiny euphoric buzz when you finally crack that Excel formula or come up with the slide that so perfectly summarizes your solution?
I don’t think many companies have exploited this understanding better than Google over the past few decades. When Google introduced free meals, days off for freestyle projects, climbing walls, free happy hours etc. it raised a few eyebrows but Google wasn’t just trying to be fun. Google relies on innovation to be successful so they simply followed the research to arrive at the most economically efficient people investments to increase their success.
These days, such perks are often table stakes in North American tech (although Google themselves are starting to roll back some of these perks), but at the time these practices revolutionized the way that companies wrote and delivered on their EVP.
So when it comes to getting the best out of problem-solving individuals, what we do know is that its not as simple as “paying people to solve problems”. A total reward strategy with the right balance of incentive mechanisms aligned to the right roles, and cultural reinforcements is the starting point to building a team of world-class problem-solvers.