Stop Incentivizing “Productivity Theater” at Work
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Sometime during the British Raj, the population of cobras in Delhi got out of control. The British government became concerned about the danger posed by the venomous snakes and decided to offer a bounty for cobra skins. They thought by offering a reward for dead cobras, the public would solve the snake infestation problem themselves.
At first, the new policy worked well. Large numbers of snakes were hunted down and killed for the reward. But the bounty also created an opportunity for profit among some enterprising people, who began to breed cobras so there would be more snakes to kill.
Here’s where the real problems emerged. When the government eventually got wise to the situation, the reward program was canceled. With no bounties to collect, cobra breeders set their now-worthless snakes free, making the infestation even worse than before.
The cobra story1 is one of perverse incentives: incentives that unintentionally reward undesirable behaviors. It’s also the namesake of the so-called “cobra effect,” coined by Horst Siebert, which describes cases where people are actually incentivized to behave in a way that makes the problem at hand worse.
As the cobra story demonstrates, implementing policies without fully understanding their implications, and without monitoring their progress, can be disastrous. It also goes to show that measuring the wrong outputs (in this case, the number of dead cobras a person could produce) or neglecting potential risks (the appearance of enterprising breeders) may well backfire. Moreover, it serves to highlight the importance of thinking through and testing solutions before taking full-scale action.
Perverse incentives can ruin the best-laid plans of bureaucrats and businesspeople. And in the world of hybrid work, they’ve become more relevant than ever.
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Perverse incentives in the modern world
Over the decades and across the globe, there are countless examples of perverse incentives put in place — some with more serious consequences than others. They usually take the form of a financial benefit or penalty.
American bank Wells Fargo2 wanted to incentivize employees to focus on sales, and so they instituted daily sales quotas and asked branch managers to meet them. But this system backfired. In 2013, it was discovered that about 30 employees had resorted to secretly opening accounts in customers’ names, without authorization, in order to keep up.
Instead of enhancing relationships with customers, Wells Fargo’s system influenced employees to act unethically. This, in turn, led to a loss of consumer trust in the bank, not to mention creating a regulatory fiasco.
The US subprime mortgage crisis can also be seen as a result of perverse incentives. In the lead up to 2008, bankers were given short-term incentives3 that were linked to the number of mortgages they would secure, without any consideration for the long-term effects on their customers or the bank’s operations. This resulted in lax requirements for loan applicants. Predictably, the percentage of lower-quality subprime mortgages4 rose from the historical 8% to approximately 20% in 2006.
The subprime mortgage crisis led to the 2008 global financial crisis and government bailouts of large financial institutions around the world. Banks such as Lehman Brothers collapsed. People lost their homes as they defaulted on their mortgage payments.
Perverse incentives are also relevant outside the financial sector. One famous example is that of an Israeli nursery that started imposing fines on parents who picked up their children late. Instead of reducing tardiness as expected, the number of parents who showed up late actually increased.
Researchers who studied this case have proposed that, when late fees were added, many parents switched from seeing lateness as a social ill (i.e. a source of inconvenience for the staff) to viewing it as an additional service that they were paying for. In other words, the introduction of fines shifted the social norms that parents adhered to.
Nobody intended for any of these to happen. But the incentive systems put in place eventually led to these behaviors.
We’re now seeing something very similar happening in the workplace.
Perverse incentives in the workplace
Since the end of the assembly line era, managers have struggled to find appropriate ways to measure productivity. In the factory, work was predictable and of low variability; measuring productivity could be as simple as counting the number of items produced in a given time frame.
Today, though, more and more people’s jobs revolve around knowledge, an asset that is neither visible nor predictable. In the face of this difficulty, and in order to measure output, companies turned to utilization as a proxy5 — that is, seeking to extract more from each worker for an hour of pay. They turned their focus to how many hours of work were completed, instead of the value of what was achieved.
Utilization is much easier to observe, and, at a first glance, it seems to make sense. After all, more time spent working, more work produced, right? And so, this approach became common practice.
In response, knowledge workers who wanted to get promoted (or simply keep their jobs) adjusted their behavior accordingly and started participating in so-called productivity theater.6 Also known as “facetime culture,” the term refers to the workplace phenomenon of engaging in behaviors that give the appearance of working hard. For example, workers may stay past normal working hours just so that the boss sees how hard they work, or schedule an abundance of meetings so that their calendars look full.
Needless to say, productivity theater has its downsides. Precious time and energy are depleted because a large part of the day is focused on performing busyness. This leaves less time and space to do the actual, deep work that people were hired to do in the first place.
As a result, employees are doing less work and have less time to spend with their families, because they use a significant amount of resources to humor their managers and act in the way this system rewards.
Hybrid work and productivity theater
Has the rise of hybrid work reduced the prevalence of productivity theater? Despite high hopes, it would seem not.
In 2020, as COVID-19 forced a transition to remote work, managers lost access to the old visual cues of busyness (like seeing an employee working at their desk or walking past on their way to a meeting). But that doesn’t mean they stopped looking for ways to measure how employees were spending their time.
In some cases, employers have turned to technology to track workers’ behavior in more minute detail than ever. Earlier this year, the New York Times published a long feature7 detailing how even senior staff are now required to account for virtually every minute of their days.
In response, employees have felt the pressure to continue these theatrics while working remotely8 by, for instance, participating in virtual meetings they don’t need to be a part of, or even using mouse jigglers9 to simulate activity and stay green-dotted. According to a recent study,5 54% of knowledge workers feel pressure to show they are online at certain times of the day. They spend an additional 67 minutes online every day, to show their colleagues and managers they are still present and “working.” In an era of increased time pressure, those 67 minutes per day carry a huge opportunity cost.
Moreover, according to Microsoft research, this situation has led to productivity paranoia6: a stark disconnect between the portion of leaders who say they have full confidence their team is productive (12%) and the portion of employees who report they are productive at work (87%).
And while leaders fear that lost productivity in a faltering economy is due to employees not working enough, the number of hours employees are working, the number of meetings they take, and other activity metrics have all increased. It’s not surprising that employee burnout is on the rise — Google searches for “burnout symptoms”10 hit an all-time high in May 2022.11 That’s bad for both workers and employers, who are now facing high turnover12 and a difficult hiring market.
Reversing perverse incentives
Bureaucrats and managers alike often view incentives as independent tools that can be simply applied to fix a given problem. But in fact, as the above examples of perverse incentives show, any intervention can inadvertently change the nature of a problem.
There is no one set of incentives or interventions that can help address the problem of productivity theater in every company. Every organization, and every team, is unique, and requires its a tailored approach. As such, a behavioral science lens can help us to design incentives that are properly aligned with the desired behavior.
Behavioral science is about understanding how people react and respond to interventions, environments, and stimuli. It supplants theories of “rational” behavior and decision-making with data-driven insights into how people actually behave in practice, taking into consideration things such as heuristics and biases, mental models, and social norms. Based on this understanding, it aims to create optimal systems and approaches to encouraging and facilitating desirable behavior.
Behavioral scientists understand that human nature is complex and that, for interventions to be successful, incentive designers within organizations must go the extra mile. Why is that? In a word, because our intuitions about what may work for other people are not reliable. As incentive designers, we may think that financial incentives and quotas are the way to go. But our cognitive limitations and the complexity of human behavior essentially mean that any intervention, as sensible as it may seem from behind a desk, may fail for a number of reasons — some of them unforeseeable.
How can a behavioral lens help? Here are some tips that can guide incentive design.
Reach out to the front line
Brainstorming and getting feedback from people across different departments and roles is important for avoiding confirmation bias. The process of brainstorming itself is liable to many behavioral pitfalls such as groupthink, fear of judgment and shedding responsibility to others, and can be improved based on behavioral science.
Break it down
Utilization may be easy to observe, but it should only be one of the things employers look at when assessing worker performance — and it definitely shouldn’t be a goal in and of itself.
Incentive designers need to distinguish between desired outcomes (goals), outputs (actions taken to further a goal), and inputs (resources used for generating actions for achieving a goal). In turn, they also need to measure and allocate the appropriate weight to each of these. Effort (input) matters, but if the system favors effort over results, in time, no one will be held accountable for the results that matter.
Choose simplicity over complexity
Simple incentives may work better than complicated ones, which tend to give rise to loopholes. Similarly, subtraction (removing an element of the work process that encourages employees to behave in an undesirable way) may work better than addition (adding a new incentive to the existing process).
Consider different types of incentives
The type of incentive (immediate or distant, reward or punishment, monetary or not, personal or social) also matters because of behavioural biases such as hyperbolic discounting, social norms and loss aversion. For example, in a study13 of Virgin Atlantic pilots, prosocial incentives had a positive impact in reducing fuel consumption.
Embracing desirable, ethical behaviors in visible and authentic ways can go a long way toward strengthening social norms around contextual ethics. Managers should lead by example, modelling the kinds of behaviors that they want to see from their team members.
As a starting point, it is reasonable for incentive designers to look elsewhere for successful examples and think about borrowing those good practices. However, relying on straightforward replication of a successful intervention in a different environment (e.g. a different company or country) is not a good strategy as context matters. Instead, testing a proposed solution in the specific environment where it will be applied is necessary to know whether or not it will work, before moving to full-scale implementation.
Incorporating behavioral science can help to carefully consider and research how people think within existing systems, how they may respond to changes, and what incentives will be optimal – curing, or hopefully avoiding, paranoias.
- Dubner, S. J. (2012, October 11). The Cobra Effect. Freakonomics. https://freakonomics.com/podcast/the-cobra-effect-2/
- Rolnick, M. (2020, August 26). Beware Of The “Cobra Effect” In Business. Forbes. https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2020/08/26/beware-of-the-cobra-effect-in-business/?sh=6d7b0f085f6f
- Murdock, C. W. (2014). How Incentives Drove the Subprime Crisis. Social Justice, 37. https://ecommons.luc.edu/cgi/viewcontent.cgi?article=1036&context=social_justice
- Graduate School of Design, Harvard Kennedy School. (2008). The State of the Nation’s Housing 2008. In Joint Center for Housing Studies of Harvard University. Harvard Kennedy School. https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2008.pdf
- DeMarco, T., & Lister, T. (1999). Peopleware: Productive Projects and Teams (2nd ed.). Dorset House. https://www.amazon.com/Peopleware-Productive-Projects-Tom-DeMarco/dp/0932633439#detailBullets_feature_div
- Hybrid Work Is Just Work. Are We Doing It Wrong? (2022, September 20). Microsoft. https://www.microsoft.com/en-us/worklab/work-trend-index/hybrid-work-is-just-work
- Kantor, J., Sundaram, A., Aufrichtig, A., & Taylor, R. (2022, August 18). Workplace Productivity: Are You Being Tracked? The New York Times. https://www.nytimes.com/interactive/2022/08/14/business/worker-productivity-tracking.html
- Why Managers and Employees Can’t Agree on How Much Work Is Getting Done. (2022, October). Microsoft. https://www.microsoft.com/en-us/worklab/why-managers-and-employees-cant-agree-on-how-much-work-is-getting-done
- Pitt, S. (2022, September 2). This $30 mouse jiggler makes it look like you’re working when you’re not. CNBC. https://www.cnbc.com/2022/09/02/how-to-use-a-mouse-jiggler-to-make-it-look-like-youre-working.html
- Google Trends: burnout symptoms. (n.d.). Google. https://trends.google.com/trends/explore?date=all&geo=US&q=burnout%20symptoms
- Ferrazzi, K., & Jiménez, J. (2022, October 12). Talking About Burnout Is Still Taboo at Work. Harvard Business Review. https://hbr.org/2022/10/talking-about-burnout-is-still-taboo-at-work?cid=other-eml-onp-mip-mck
- Tupper, H., & Ellis, S. (2022, July 4). It’s Time to Reimagine Employee Retention. Harvard Business Review. https://hbr.org/2022/07/its-time-to-reimagine-employee-retention
- Gosnell, G., List, J., & Metcalfe, R. (2016). A New Approach to an Age-Old Problem: Solving Externalities by Incenting Workers Directly. NBER Working Paper Series. https://doi.org/10.3386/w22316
About the Author
Dr. Melina Moleskis is the founder of meta-decisions, a consultancy that leverages management science and behavioral economics to help people and organizations make better decisions. Drawing from her dual background in business and academia, she works with determination towards uncovering pragmatic, sustainable solutions that improve performance for clients. Melina is also a visiting Professor of Technology Management as she enjoys spending time in the classroom (teaching as the best route to learning) and is always on the lookout for technology applications in behavioral science. In her prior roles, Melina has served as an economic and business consultant for 7 years in various countries, gaining international experience across industries and the public sector. She holds a PhD in Managerial Decision Science from IESE Business School, MBA in Strategy from NYU Stern and BSc in Mathematics and Economics from London School of Economics.