Sober Up with Associative Compensation

 

People from all over the world have some very mixed feelings about the United States.

There is one thing that just about everyone I’ve spoken to can agree on, however, and that is the in the US, we have GREAT service. Truly second-to-none.

This feeling is almost universal.

You could speak to the hardest core jihadist and he would tell you “Yes, the American Devil must pay for his crimes and the evil United States is responsible for all the world’s problems. The staff at the Denny’s I went to in Michigan for that bomb-making seminar was quite pleasant, however.”

This isn’t because American’s are the friendliest folk on the planet, but because we have a financial incentive to make sure that customers have a good time, and that financial incentive is called tipping.

Now however you feel about tipping, it’s hard to argue with the fact that it does seem to enliven people in the service industries like little else can. If they don’t do their jobs well, they’ll make less money. If they do exceedingly well, they’ll make more money. Some people will shirk the system and not tip at all regardless, but I’m describing the average here.

So knowing this, why don’t more jobs come with additional incentive to do your best work?

For most people working a 9-to-5, the only valid reason to even show up is that if they don’t, they’ll be fired. Getting the optimal value out of someone who feels this way about their job is tough.

So why not make it worth their while? Give them a financial incentive to do better work that is directly tied to performance, rather than being tied to time (like an hourly wage), seniority (like a scheduled raise) or politics (like a new title).

This incentive could come in a lot of forms, but the most direct is to give them stock in the company. Make it super-easy for them to keep track of how their efforts impact the company’s bottom line, too, with an app or a personal website where they can track the stock prices or department revenue month-by-month.

Give them all the resources they need to see the direct relationship between their efforts and the rewards they receive and they’ll play to win.

Give them nothing but threats and routine and they’ll sit on the bleachers and drink beer. Lots and lots of beer.

Associative compensation or drunken employees.

Your choice.

27 comments

  1. Ah, dear Colin, so true, so true. In the midst of the dreadful, mumbling, bored service we get over the pond…there is Apple.
    I have met people at Apple stores who would fight you to get to work.
    I don’t believe their incentive is stocks as when I ask (repeatedly in awe) nobody mentions it…but those Apple chiefs have put SOMEthing in the water!

  2. I think most people care more about the work that they do than a financial incentive. From this article (http://www.paulgraham.com/artistsship.html) by Paul Graham, talking about one of their companies that got acquired, “Here’s a sign of how much programmers like to be able to work hard: these guys would have paid to be able to release code immediately, the way they used to. I asked them if they’d trade 10% of the acquisition price for the ability to release code immediately, and all three instantly said yes.”

    I agree that there should be incentives to work, but not financial. People who are internally driven (the kind of linchpins you want) care much more about the work they are doing.

  3. While I agree with the premise both my time in a sales office, Carlos’ video reply and a number of other reward/punishment psych studies I’ve worked on and read have shown that there is only so much that monetary reward can provide.
    The video that Carlos posted is excellent. It really shows that to get people to commit 100% of themselves to an idea you MUST show them that they are part of the idea, not just a pawn. That’s difficult to do in most jobs where you have people in charge that are power hungry, simple minded, or simply just poor managers.
    Supply people with more spoken credit or meaningful, intrinsic rewards and you’ll find they work infinitely harder.

  4. Interesting post but I’m sorry I just don’t agree, American service is pretty awful most of the time – unless of course you’re going to a five star restaurant. There is a very stark contrast once you’ve been in Japan for any amount of time (where there are absolutely no tips). It’s always a shock to my system when I return to the States and get absolutely ignored at a cash register or have a waitress start telling me how bad her day is. However I would say that with Americans you have far more of a chance of making an authentic ‘connection’ with someone, whereas in Japan they are often just going through the motions of being ultra-polite.

  5. @Dan – I’m on the same page. True sales professionals probably could work for a year or two based on pure financial incentives. From there, however, they are going to need a lot more than the money danging from stick in front of them.

    I’m hypothesizing that this would be true across most careers – unless a customer service representative, or a bagger at a grocery store truly enjoys what they are doing on a daily basis, no amount of money is going to change they way they perceive their work (and therefore DO their work).

    Relating to Pea’s comment – look at the different that you see between a shelving clerk at a normal grocery store, versus a shelfing clerk at Trader Joe’s. The folks at Trader Joes are engaged with their work; they feel like they are part of a movement. Your standard grocery clerk probably mopes around hating their circumstances.

  6. @Dan – I’m on the same page. True sales professionals probably could work for a year or two based on pure financial incentives. From there, however, they are going to need a lot more than the money danging from stick in front of them.

    I’m hypothesizing that this would be true across most careers – unless a customer service representative, or a bagger at a grocery store truly enjoys what they are doing on a daily basis, no amount of money is going to change they way they perceive their work (and therefore DO their work).

    Relating to Pea’s comment – look at the different that you see between a shelving clerk at a normal grocery store, versus a shelfing clerk at Trader Joe’s. The folks at Trader Joes are engaged with their work; they feel like they are part of a movement. Your standard grocery clerk probably mopes around hating their circumstances.

  7. Wow, lots of great comments, and I clearly didn’t make my stance clear enough: I didn’t mean that money is the only way to compensate people.

    I emphasized financial incentive because it is the most direct (and easy to explain, especially in terms of tipping), but where I said ‘Give them all the resources they need to see the direct relationship between their efforts and the rewards they receive and they’ll play to win’ I definitely meant rewards to be just about anything that makes them want to come to work every day and do their best.

    That’s one of my favorite TED’s too, by the way :)

  8. incentives are a great thing and make people feel appreciated too! I have also heard many times that Americans have great service. I left the US and moved to Canada for 8 years and heard that all the time.

  9. Good post, though I am not sure I fully agree. Tipping does have a slight correlation between service and customer evaluation (never mind all the other negatives and distortions tipping might create), but there are a lot of studies that show stock grants are not effective incentives. The recent financial meltdown in the US is a good real world example of how stock grants don’t really provide an incentive to better work (depending on your definition of “better” I suppose).

    As Colin and others mention in the comments, there are incentives other than money. Perhaps non-monetary incentives would be better, or ensuring that monetary incentives don’t create unintended behavioral distortions (such as making bad home loans).

    Good post and interesting discussion. I would be curious to know what sparked you to write this Colin.

  10. I disagree…as someone else pointed out, American service is far worse than the service in much of Asia, where tipping is much less common. And restaurant tipping varies very little, at most people dock or add on a couple percentage points so there isn’t much of an incentive to provide better service. When’s the last time you saw someone leave 0% or 5% tips? It doesn’t happen except in the most extreme of cases that would probably result in being fired anyway. When I go out with friends, we tip 15-20% without a discussion on service quality, just because that’s what we’re supposed to do. The amount mostly just varies based on what change we happen to have in our pocket and how good our math is that day ;-).

  11. Wow. That was some Freakonomics-esque insight there. I never really thought that tipping actually made our service better, but now that you mention it, it is so very true. When I was in China and Mexico no one tipped and reflecting back on it, the service suffered. Thats not to say that they were not friendly, but tips are a powerful incentive.

    I’ve recently become interested in employee owned businesses as a way to be fair/provide incentive; apparently, they’re starting to gain more and more popularity in Argentina. Did you have any experiences with that while you lived there?

  12. Completely agree. Reward systems are currently completely outdated. I honestly think this will have to change over time, to give incentive to do a better job at what ever it is you do. It’s something that will have to overcome a significant amount of inertia though, too many people with interest in being rewarded for not doing much.

  13. The US has great service? Really? Perhaps in higher end restaurants but in most stores and even in many restaurants with tips, service is pretty mediocre in my opinion.

    Japan doesn’t have any tradition of tipping yet service everywhere is much better. Gas station attendants literally run to cars. Taxi drivers where white gloves. Restaurants and stores are very clean.

    There is some incentive to give better service with tipping, but I think it is much more closely tied to the values of the country. Hospitable countries give hospitable service.

    The problem in the US (I will group Canada and the UK in here too.) is that workers are starting to think they are too good for the job and don’t care anymore. Everyone thinks they are ‘rockstars’ that deserve easy passive income on low hour workweeks. Tipping doesn’t help much when countries start to lose their basic human decency and work ethic.

    Talk to your grandparents about what service was like 30 or 40 years ago. Everyone cared much, much more. It was not about productivity, service and quality mattered.

    Go to a shopping mall, restaurant or airport and look at the clothes people are wearing in public. There is no class or sophistication in society anymore and those are the same people who are working in all the restaurants and stores.

    When I was a child people used to get dressed up to go out to restaurants and to travel. Economy class had levels of service comparable to business class now. Service sucks because people don’t care anymore. It is only going to get worse.

  14. Damn right, I love the service in the US of A, in England it sucks…massively. If we had massage parlours you would probably end up having to rub your own back.

  15. Great post and site! One thing similar to tips in places other than the good old USA, in so far as incentives is that of yearly bonuses. These are largely based upon work performance and equate to the “grown-up” or professional equivalent of tips (in some respects) to those of the waiters(resses/wait-persons if you want to get PC). This could provide incentive for the workforce to better excel in their respective places of work. This would require a change in culture and business processes.

  16. It depends on the work. Like Daniel Pink says in the Ted video, if the tasks is simple then compensating for speed works. But if the tasks requires creativity, thinking outside the box or just coming up with ideas then incentives don’t do much. They can even have a negative effect on the the work.

  17. Quite a variety of responses. Personally I don’t find the service in the US particularly better than anywhere else, in fact I’m always a bit put off by the fact that I’m never sure if people are being genuinely nice or just pretending in order to get more money.

  18. Spoiler: Nuther contradictory rant…

    IMO, we’d live in a better society if the lower wage workers were just paid more. Waiters/waitresses almost across the board are spiteful of their clients. Just as the only reason hourly employees show up to is not to get fired AKA they need the job, the only real reason a waiter/waitress does their job is because their hourly pay is not enough to cover their daily needs AKA they need the tips. i.e. they do it more because of the whip then because of the carrot. This strategy may work in the short term to insentive employees but leads to higher turnover, lower skilled, and ultamitely unhappy employees. These reasons may seem trivial to the incentive of tipping but how many times have you gone to a resteraunt where the waiter states they’re new, tries to be very preppy/happy then messes up the order 3 times. Nope for me, personally,.have my order take an extra 10 m while I talk/read/whatev from an experienced waitstaff whom I know are getting paid well, will prob. get my order right and aren’t cursing my presence every moment they’re not in front of me. And hey, in some countries I wouldn’t even have to tip. Of course tipping ON TOP of decent wage is a different matter, but thats not what we’re talking about in the US is it?

  19. In my exit interview from my last office job, they asked what frustrated me about the job, and I simply said, “There’s no reason for me to work any harder than I have to. If the guy next to me is doing half the work I am and we’re getting paid the same, why would I work any harder?”

    It shocks me how little priority this concept is given in the workplace. We wouldn’t have to work so hard at keeping employees happy.

  20. The US, good service? Hah, no.

    Try Turkey. Or Mexico. Or Japan. Incidentally, none of them expect tips de facto.

    The best service I’ve ever had was, invariably, in places where there was a culture of service, where being kind to customers (and the reverse, to staff) was the social norm.

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