Tuesday, November 6, 2007

Extrinsic Rewards Distort Facial Features in Pakistan

Like democracy, the U.S. wants to export our "best practices". Bonuses, stock options, and pay for performance are common in American business, but they've spread to Pakistan. Extrinsic rewards have a clear history of distorting management behavior. Despite this, the Bush administration wants to spread them into health care and deeper into education.

Stock options in the late 1990's caused leaders to take greater risks, to swing for the fence on every pitch. During their twelve year run, nearly 30% of publicly traded companies cheated on their stock option grants through back dating. Few of these SEC violations have been prosecuted, despite George Bush's "zero tolerance" for thieving. Apparently it doesn't apply to stockholders. Even the President's Uncle Bucky benefited from such malfeasance, although the act was likely committed by an enterprising ESSI executive.

Pakistan picked up on the external motivation tool in its oppression of 12,000 lawyers and judges. Under martial law due to an Islamic extremist threat, President Pervez Musharraf continues a brutal crackdown on the third leg of democracy, an independent judiciary that guarantees basic human rights. Pervez knows how to motivate his officers according to a CNN report:

Police earned cash bonuses for beating and arresting hundreds of lawyers Monday who had gathered outside of Lahore's courthouse, police sources said.

External rewards are temporary, requiring more and more over time to get the same short lived boost. They also suboptimize the organization by causing people to focus on maximizing their pay. This was proven by widespread American CEO cheating under stock option grants, promoted as the most pure system of reward.

The junta in Pakistan now uses Western motivational tools to crack down on its citizens. How much do they get for breaking a nose? Does it double for a good skull cracking? What about an arm and a leg?

Will the generals in Myanmar offer similar bonuses in their next Buddhist monk crackdown? If so, Chevron and Total SA may need to up their production sharing payments to the junta to fund the worldwide export of "pay for performance".

Why not do as Dr. Deming said, "if you want people to do a good job, give them a good job to do." That includes paying people fairly, then focusing on the work, not money. Extrinsic rewards distort, in more ways than one. Ask the Pakistani lawyers needing facial reconstruction. As for the promised January election, Dr. Deming's words are also instructive. "Wherever there is fear, you'll get wrong figures."