With executives under fire for driving their companies into the ground – and with them the global economy – I say it's time for a managerial paradigm shift that focuses on the root of all booms and busts: individual behavior. Common practices such as annual bonuses and layoffs ultimately reward bad behavior, punish good behavior and lead to devastating results, especially in challenging economic times.
Throw out conventional wisdom and correct widespread management mistakes, including:
- Downsizing – While layoffs may offer a short-term fix, in the end they fix little. What they do is decrease morale and reduce productivity. It’s better to ask all employees to participate in the process of making the organization efficient and effective.
- Annual bonuses – A year-end lump sum that’s not tied to a specific achievement does nothing to promote loyalty and top-notch performance. Companies need to break the bonus habit.
- Overvaluing smart, talented people – The banking and mortgage crisis revealed that smart, talented people can learn bad behavior quickly. You already have many smart, talented people. Money and time are better spent developing the people you have rather than trying to entice and buy "talent."
- Automatic pay raises – Don't reward employees for simply showing up; pay raises should be performance-based, not automatic.
Many organizations manage performance in a way that motivates employees to do only enough to get by and avoid getting in trouble (negative reinforcement). Typically, these organizations manage by exception, providing consequences for workers' performance only when it falls below the standard or minimum required. This approach gets immediate results, but just enough behavior to stop the threats and the potential for other negative consequences in the near future. It suppresses discretionary effort because there’s nothing in it for people to do more than the minimum required.
A better approach is to eliminate negative consequences (e.g., time, effort) for critical business behaviors and then build in frequent, positive consequences for those same behaviors and tap into the discretionary efforts of the workforce. Not only is this good for business, it’s good for the organizational culture and the workforce.
If there’s a silver lining to the economic crisis, it’s that it offers a once-in-a-lifetime opportunity to rethink and reform the way we run our organizations, using an approach grounded in science and research rather than dubious habits. By using the insights of behavioral science to understand and improve the performance of individuals, we can transform our organizations and put our economy back on the right track.
Aubrey Daniels will be hosting a virtual workshop titled "Management Practices that Waste Time and Money" on Tuesday, July 17, at 3:45 p.m. EST as part of Human Capital Media's Summer School 2012 event. For more information and to register, click here.