The American Dream and Incentives - What Our Politicians Can't Get Right

On the front page of today's Greenville, SC newspaper, down below the cover story of home-town boy Lucas Glover winning the PGA US Open, is an article entitled "Homebuyers may get $15,000 tax break."  I tried to find it on line to provide the link but #fail on that. 

The article is about how our brilliant lawmakers are trying to expand the tax credit from $8,000 to $15,000 for those that buy a home in this depressed market.  The real money quotes in the article are from Donald Schunk, research economist with Coastal Carolina University.  Here's the quote:

""If the goal is to have more people buy homes, it would work," he said of expanding the program.  But 'if it takes a program like this to help someone buy a home, is that really something we should be doing?  We have a pretty clear record where people were helped to get into homes' and then couldn't afford the mortgages."

The American dream, Schunk said, 'is not simply buying a home.  It's working hard to afford a home, buying it and being able to comfortably enjoy living in it.'"

Read that last statement again.  Then read it again. 

The American Dream isn't about owning a home - it's about WORKING HARD TO AFFORD A HOME!

This is the problem many incentive programs have - they define the outcome - "own a home" and provide incentives for that.  In this case the real objective is to motivate poeple to "work hard to AFFORD a home."  That's what we need to encourage, reward, and motivate.  I've said it a hundred times - results only exist at the end of a string of behaviors.   Motivate the behavior not the result.

Using this example here are some things off the top of my head (and I'm sure many of you could come up with more better options as well) that would move people toward the goal of the American Dream - "Working hard to AFFORD a home."

• Provide tax credits to those that contribute at least 20% in down payment (pick a number - the point is to have skin in the game.)
• Set up "home saving accounts" similar to Health Savings Accounts and make the deposits and the interest tax free
• Provide tax rebates to those that make payments on time
• Make financial planning fees tax deductible
• Make courses in budgeting and financial planning tax deductible
• Provide companies that make responsible loans with incentives to continue to provide those loans

I'm not a big fan of government intervention - but if we're going to let them stick their noses into our business we should at least make sure they don't do more harm than good.

Motivate the behavior not just reward the result!

Comments

[Darcy Dees]

Paul this is a great post, and a topic that I've seen you address before. I think the biggest reason why we see results rather than behaviors being incentivized is because results are easier to measure than behaviors. It would take more work to identify the behavioral measures and not everyone is willing to put in the time, but I think you're right in that the effort would be handsomely rewarded.

[Paul Hebert]

Path of least resistance almost always gets you the least results. Thanks Darcy for reading and commenting.

[Chris Ferdinandi - Renegade HR]

Paul, what about when someone demonstrates the behaviors you've identified but doesn't get the results? A business succeeds because of results, not effort.

[Paul Hebert]

Chicken and egg time. Agree that results are important - but not ALL important. Too heavy a reliance on ONLY results gives us problems like we've just seen in our own financial system. The key here it reward results as a part of the overall effort. There are other mechanisms in place such as compensation strategies and Recognition that can focus on the results side of the equation. The point is that too often we focus on results when in reality what we NEED to focus on is the behaviors that lead to results. As the post states - home ownership can be achieved in a variety of ways - but isn't the real need. Heck - we can raise taxes and give everyone a home from government funds. The key is to reinforce behaviors that support the overall goal. In business that could be networking as a step in the sales process vs. simply paying outrageous incentives for the actual sale. Over time the ability to network is a skill that will drive sales (and other options for the company.) Rewarding just the sale opens the door to unintended consequences.

Thanks Chris for continuing to challenge! Appreciate it.

[Chris Ferdinandi - Renegade HR]

Paul, let me push this a bit further. You noted:

Over time the ability to network is a skill that will drive sales (and other options for the company.) Rewarding just the sale opens the door to unintended consequences.

I agree that rewarding just the sale can result in unintended consequences. Lots of research supports the notion that focusing only on results increasing unethical behavior. It's one of my biggest gripes with ROWE.

That said, the ability to network is a skill that may drive sales. People who are good at sales typically are great networkers, but great networking doesn't necessarily mean you'll be great at sales. Doesn't the organization run the risk of rewarding something that doesn't necessarily equate to the result they're looking for with this approach?

[Paul Hebert]

There is always a possibility that you could reward someone for doing what you want but not getting the result. But good management would identify that issue and look for other root causes. Maybe the person is in the wrong seat and needs to be put in another position. None of this is something that would go on for ever. Theoretically, incentives for specific behaviors should go away after the behavior becomes part of the habit. Unfortunately, in business, we now think incentives are something that need to run continuously to get results. But that is because we base them on results and we've trained our employees to only work when the carrot is dangled.

If focused on behaviors - and less institutionalized - incentives are very effective.

We use experience with poorly designed programs as evidence that good programs don't work.

[Chris Ferdinandi - Renegade HR]

Paul, I definitely understand what you're saying, and don't disagree that behaviors are an important part of the puzzle, but behaviors don't always equal results, not do results always come from the behaviors you want. Shouldn't you focus on both, and not just one or the other?

[Chris Ferdinandi - Renegade HR]

Paul, I definitely get what you're saying. But behaviors don't always equal results, and results don't always come from the behaviors you want. Couldn't an effective program look at both? Or perhaps reward results but coach on behaviors?

[Paul Hebert]

Aaahhh... me a bit thick today.

Absolutely. We are in violent agreement. I would err more on the side of behaviors for long-term change vs. results for short term focus. As most things in life - balance baby balance.