OnthefollyofrewardingAwhilehopingforB.pdf

On the Folly of Rewarding A, while Hoping for B

Author(s): Steven Kerr

Source: The Academy of Management Executive (1993-2005) , Feb., 1995, Vol. 9, No. 1
(Feb., 1995), pp. 7-14

Published by: Academy of Management

Stable URL: https://www.jstor.org/stable/4165235

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C Academy of Management Executive, 1995 Vol. 9 No. 1

AN ACADEMY CLASSIC

On the folly of rewarding A,
while hoping for B
Steven Kerr

Executive Overview This article, updated for AME, needs no introduction.’ Even today, the original
article is still widely reprinted. Now part of the lexicon, it truly qualifies as an
Academy of Management Classic. For almost twenty years, its title has
reminded executives and scholars alike-“it’s the reward system, stupid!” We
hope you enjoy the update!

Editor

Whether dealing with monkeys, rats, or human beings, it is hardly controversial
to state that most organisms seek information concerning what activities are
rewarded, and then seek to do (or at least pretend to do) those things, often to
the virtual exclusion of activities not rewarded. The extent to which this occurs
of course will depend on the perceived attractiveness of the rewards offered, but
neither operant nor expectancy theorists would quarrel with the essence of this
notion.

Nevertheless, numerous examples exist of reward systems that are fouled up in
that the types of behavior rewarded are those which the rewarder is trying to
discourage, while the behavior desired is not being rewarded at all.

Fouled Up Systems

In Politics

Official goals are “purposely vague and general and do not indicate . .. the
host of decisions that must be made among alternative ways of achieving
official goals and the priority of multiple goals . . .”2 They usually may be
relied on to offend absolutely no one, and in this sense can be considered high
acceptance, low quality goals. An example might be “All Americans are entitled
to health care.” Operative goals are higher in quality but lower in acceptance,
since they specify where the money will come from, and what alternative goals
will be ignored.

The American citizenry supposedly wants its candidates for public office to set
forth operative goals, making their proposed programs clear, and specifying
sources and uses of funds. However, since operative goals are lower in
acceptance, and since aspirants to public office need acceptance (from at least
50.1 percent of the people), most politicians prefer to speak only of official
goals, at least until after the election. They of course would agree to speak at
the operative level if “punished” for not doing so. The electorate could do this
by refusing to support candidates who do not speak at the operative level.
Instead, however, the American voter typically punishes (withholds support
from) candidates who frankly discuss where the money will come from, rewards

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Academy of Management Executive

politicians who speak only of official goals, but hopes that candidates (despite
the reward system) will discuss the issues operatively.

In War

If some oversimplification may be permitted, let it be assumed that the primary
goal of the organization (Pentagon, Luftwaffe, or whatever) is to win. Let it be
assumed further that the primary goal of most individuals on the front lines is to
get home alive. Then there appears to be an important conflict in
goals-personally rational behavior by those at the bottom will endanger goal
attainment by those at the top.

But not necessarily! It depends on how the reward system is set up. The
Vietnam war was indeed a study of disobedience and rebellion, with terms such
as “fragging” (killing one’s own commanding officer) and “search and evade”
becoming part of the military vocabulary. The difference in subordinates’
acceptance of authority between World War II and Vietnam is reported to be
considerable, and veterans of the Second World War were often quoted as being
outraged at the mutinous actions of many American soldiers in Vietnam.

Consider, however, some critical differences in the reward system in use during
the two conflicts. What did the GI in World War II want? To go home. And when
did he get to go home? When the war was won! If he disobeyed the orders to
clean out the trenches and take the hills, the war would not be won and he
would not go home. Furthermore, what were his chances of attaining his goal
(getting home alive) if he obeyed the orders compared to his chances if he did
not? What is being suggested is that the rational soldier in World War II,
whether patriotic or not, probably found it expedient to obey.

Consider the reward system in use in Vietnam. What did the soldier at the
bottom want? To go home. And when did he get to go home? When his tour of
duty was over! This was the case whether or not the war was won. Furthermore,
concerning the relative chance of getting home alive by obeying orders
compared to the chance if they were disobeyed, it is worth noting that a
mutineer in Vietnam was far more likely to be assigned rest and rehabilitation
(on the assumption that fatigue was the cause) than he was to suffer any
negative consequence.

In his description of the “zone of indifference,” Barnard stated that “a person
can and will accept a communication as authoritative only when . .. at the time
of his decision, he believes it to be compatible with his personal interests as a
whole.”3 In light of the reward system used in Vietnam, wouldn’t it have been
personally irrational for some orders to have been obeyed? Was not the military
implementing a system which rewarded disobedience, while hoping that
soldiers (despite the reward system) would obey orders?

In Medicine

Theoretically, physicians can make either of two types of error, and intuitively
one seems as bad as the other. Doctors can pronounce patients sick when they
are actually well (a type 1 error), thus causing them needless anxiety and
expense, curtailment of enjoyable foods and activities, and even physical
danger by subjecting them to needless medication and surgery. Alternately, a

doctor can label a sick person well (a type 2 error), and thus avoid treating what
may be a serious, even fatal ailment. It might be natural to conclude that

physicians seek to minimize both types of error.

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Kerr

Such a conclusion would be wrong. It has been estimated that numerous
Americans have been afflicted with iatrogenic (physician caused) illnesses.4
This occurs when the doctor is approached by someone complaining of a few
stray symptoms. The doctor classifies and organizes these symptoms, gives
them a name, and obligingly tells the patient what further symptoms may be
expected. This information often acts as a self-fulfilling prophecy, with the
result that from that day on the patient for all practical purposes is sick.

Why does this happen? Why are physicians so reluctant to sustain a type 2 error
(pronouncing a sick person well) that they will tolerate many type 1 errors?
Again, a look at the reward system is needed. The punishments for a type 2
error are real: guilt, embarrassment, and the threat of a malpractice suit. On
the other hand, a type 1 error (labeling a well person sick) is a much safer and
conservative approach to medicine in today’s litigious society. Type 1 errors also
are likely to generate increased income and a stream of steady customers who,
being well in a limited physiological sense, will not embarrass the doctor by dying
abruptly. Fellow physicians and the general public therefore are really rewarding
type 1 errors while hoping fervently that doctors will try not to make them.

A current example of rewarding type 1 errors is provided by Broward County,
Florida, where an elderly or disabled person facing a competency hearing is
evaluated by three court-appointed experts who get paid much more for the
same examination if the person is ruled to be incompetent. For example,

psychiatrists are paid $325 if they judge someone to be incapacitated, but earn
only $125 if the person is judged competent. Court-appointed attorneys in
Broward also earn more-$325 as opposed to $175-if their clients lose than if
they win. Are you surprised to learn that, of 598 incapacity proceedings initiated
and completed in the county in 1993, 570 ended with a verdict of
incapacitation?5

In Universities

Society hopes that professors will not neglect their teaching responsibilities but
rewards them almost entirely for research and publications. This is most true at
the large and prestigious universities. Cliches such as “good research and good
teaching go together” notwithstanding, professors often find that they must
choose between teaching and research-oriented activities when allocating their
time. Rewards for good teaching are usually limited to outstanding teacher
awards, which are given to only a small percentage of good teachers and
usually bestow little money and fleeting prestige. Punishments for poor
teaching are also rare.

Rewards for research and publications, on the other hand, and punishments for
failure to accomplish these, are common. Furthermore, publication-oriented
resumes usually will be well-received at other universities, whereas teaching
credentials, harder to document and quantify, are much less transferable.
Consequently it is rational for university professors to concentrate on research,
even to the detriment of teaching and at the expense of their students.

By the same token, it is rational for students to act based upon the goal
displacement6 which has occurred within universities concerning what they are
rewarded for. If it is assumed that a primary goal of a university is to transfer

knowledge from teacher to student, then grades become identifiable as a means
toward that goal, serving as motivational, control, and feedback devices to
expedite the knowledge transfer. Instead, however, the grades themselves have
become much more important for entrance to graduate school, successful

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Academy of Management Executive

employment, tuition refunds, and parental respect, than the knowledge or lack
of knowledge they are supposed to signify.

It therefore should come as no surprise that we find fraternity files for
examinations, term paper writing services, and plagiarism. Such activities
constitute a personally rational response to a reward system which pays off for
grades rather than knowledge. These days, reward systems-specifically, the
growing threat of lawsuits-encourage teachers to award students high grades,
even if they aren’t earned. For example:

When Andy Hansen brought home a report card with a disappointing C in
math, his parents … sued his teacher…. After a year and six different
appeals within the school district, another year’s worth of court proceedings,
$4000 in legal fees paid by the Hansens, and another $8500 by the district …
the C stands. Now the student’s father, auto dealer Mike Hansen, says he
plans to take the case to the State Court of Appeals…. “We went in and
tried to make a deal: They wanted a C, we wanted an A, so why not
compromise on a B?” Mike Hansen said. “But they dug in their heels, and
here we are.”7

In Consulting
It is axiomatic that those who care about a firm’s well-being should insist that
the organization get fair value for its expenditures. Yet it is commonly known
that firms seldom bother to evaluate a new TQM, employee empowerment
program, or whatever, to see if the company is getting its money’s worth. Why?
Certainly it is not because people have not pointed out that this situation exists;
numerous practitioner-oriented articles are written each year on just this point.

One major reason is that the individuals (in human resources, or organization
development) who would normally be responsible for conducting such
evaluations are the same ones often charged with introducing the change effort
in the first place. Having convinced top management to spend money, say, on
outside consultants, they usually are quite animated afterwards in collecting
rigorous vignettes and anecdotes about how successful the program was. The
last thing many desire is a formal, revealing evaluation. Although members of
top management may actually hope for such systematic evaluation, their
reward systems continue to reward ignorance in this area. And if the HR
department abdicates its responsibility, who is to step into the breach? The
consultants themselves? Hardly! They are likely to be too busy collecting
anecdotal “evidence” of their own, for use on their next client.

In Sports
Most coaches disdain to discuss individual accomplishments, preferring to
speak of teamwork, proper attitude, and one-for-all spirit. Usually, however,
rewards are distributed according to individual performance. The college
basketball player who passes the ball to teammates instead of shooting will not
compile impressive scoring statistics and is less likely to be drafted by the pros.
The ballplayer who hits to right field to advance the runners will win neither
the batting nor home run titles, and will be offered smaller raises. It therefore is
rational for players to think of themselves first, and the team second.

In Government
Consider the cost-plus contract or its next of kin, the allocation of next year’s
budget as a direct function of this year’s expenditures-a clear-cut example of a
fouled up reward system. It probably is conceivable that those who award such
budgets and contracts really hope for economy and prudence in spending. It is

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Kerr

obvious, however, that adopting the proverb “to those who spend shall more be
given,” rewards not economy, but spending itself.

In Business
The past reward practices of a group health claims division of a large eastern
insurance company provides another rich illustration. Attempting to measure

and reward accuracy in paying surgical claims, the firm systematically kept
track of the number of returned checks and letters of complaint received from
policyholders. However, underpayments were likely to provoke cries of outrage
from the insured, while overpayments often were accepted in courteous silence.
Since it was often impossible to tell from the physician’s statement which of two
surgical procedures, with different allowable benefits, was performed, and
since writing for clarifications would have interfered with other standards used
by the firm concerning percentage of claims paid within two days of receipt, the
new hire in more than one claims section was soon acquainted with the
informal norm: “When in doubt, pay it out!”

This situation was made even worse by the firm’s reward system. The reward
system called for annual merit increases to be given to all employees, in one of
the following three amounts:

1. If the worker was “outstanding” (a select category, into which no more
than two employees per section could be placed): 5 percent

2. If the worker was “above average” (normally all workers not “outstanding”
were so rated): 4 percent

3. If the worker committed gross acts of negligence and irresponsibility for
which he or she might be discharged in many other companies: 3 percent.

Now, since the difference between the five percent theoretically attainable
through hard work and the four percent attainable merely by living until the
review date is small, many employees were rather indifferent to the possibility
of obtaining the extra one percent reward. In addition, since the penalty for
error was a loss of only one percent, employees tended to ignore the norm
concerning indiscriminant payments.

However, most employees were not indifferent to a rule which stated that,
should absences or latenesses total three or more in any six-month period, the
entire four or five percent due at the next merit review must be forfeited. In this
sense, the firm was hoping for performance, while rewarding attendance. What
it got, of course, was attendance. (If the absence/lateness rule appears to the
reader to be stringent, it really wasn’t. The company counted “times” rather
than “days” absent, and a ten-day absence therefore counted the same as one
lasting two days. A worker in danger of accumulating a third absence within
six months merely had to remain ill-away from work-during a second
absence until the first absence was more than six months old. The limiting
factor was that at some point salary ceases, and sickness benefits take over.
This was usually sufficient to get the younger workers to return, but for those
with 20 or more years’ service, the company provided sickness benefits of 90
percent of normal salary, tax-free! Therefore….).

Thanks to the U.S. government, even the reporting of wrongdoing has been
corrupted by an incredibly incompetent reward system that calls for
whistleblowing employees to collect up to thirty percent of the amount of a
fraud without a stated limit. Thus prospective whistleblowers are encouraged to
delay reporting a fraud, even to actively participate in its continuance, in order
to run up the total and, thus, their percentage of the take.

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Academy of Management Executive

I’m quite sure that by now the reader has thought of numerous examples in his
or her own experience which qualify as “folly.” However, just in case, Table 1
presents some additional examples well worth pondering.

Table 1
Common Management Reward Follies

We hope for.. . But we often reward …

* long-term growth; environmental 0 quarterly earnings
responsibility

* teamwork * individual effort

* setting challenging “stretch” objectives * achieving goals; “making the numbers”

* downsizing; rightsizing; delayering; * adding staff; adding budget; adding Hay

restructuring points

* commitment to total quality * shipping on schedule, even with defects

* candor; surfacing bad news early * reporting good news, whether it’s true or
not; agreeing with the boss, whether or
not (s)he’s right

Causes
Extremely diverse instances of systems which reward behavior A although the
rewarder apparently hopes for behavior B have been given. These are useful to
illustrate the breadth and magnitude of the phenomenon, but the diversity
increases the difficulty of determining commonalities and establishing causes.
However, the following four general factors may be pertinent to an explanation
of why fouled-up reward systems seem to be so prevalent.

1. Fascination with an Many managers seek to establish simple,
“Objective” Criterion quantifiable standards against which to measure

and reward performance. Such efforts may be
successful in highly predictable areas within an
organization, but are likely to cause goal
displacement when applied anywhere else.

2. Overemphasis on Difficulties often stem from the fact that some parts
Highly Visible of the task are highly visible while other parts are
Behaviors not. For example, publications are easier to

demonstrate than teaching, and scoring baskets and
hitting home runs are more readily observable than
feeding teammates and advancing base runners.
Similarly, the adverse consequences of pronouncing
a sick person well are more visible than those
sustained by labeling a well person sick.
Team-building and creativity are other examples of
behaviors which may not be rewarded simply
because they are hard to observe.

3. Hyprocrisy In some of the instances described the rewarder may
have been getting the desired behavior,

notwithstanding claims that the behavior was not

desired. For example, in many jurisdictions within
the U.S., judges’ campaigns are funded largely by
defense attorneys, while prosecutors are legally

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Kerr

barred from making contributions. This doesn’t do a
whole lot to help judges to be “tough on crime”
though, ironically, that’s what their campaigns
inevitably promise.

4. Emphasis on Morality Sometimes consideration of other factors prevents
or Equity Rather than the establishment of a system which rewards
Efficiency behavior desired by the rewarder. The felt obligation

of many Americans to vote for one candidate or
another, for example, may impair their ability to
withhold support from politicians who refuse to
discuss the issues. Similarly, the concern for
spreading the risks and costs of wartime military
service may outweigh the advantage to be obtained

by committing personnel to combat until the war is
over. The 1994 Clinton health plan, the Americans
with Disabilities Act, and many other instances of
proposed or recent governmental intervention
provide outstanding examples of systems that
reward inefficiency, presumably in support of some
higher objective.

Altering the Reward System
Managers who complain about lack of motivation in their workers might do well
to consider the possibility that the reward systems they have installed are
paying off for behavior other than what they are seeking. This, in part, is what
happened in Vietnam, and this is what regularly frustrates societal efforts to
bring about honest politicians and civic-minded managers.

A first step for such managers might be to explore what types of behavior are
currently being rewarded. Chances are excellent that these managers will be
surprised by what they find-that their firms are not rewarding what they
assume they are. In fact, such undesirable behavior by organizational members
as they have observed may be explained largely by the reward systems in use.

This is not to say that all organizational behavior is determined by formal
rewards and punishments. Certainly it is true that in the absence of formal
reinforcement some soldiers will be patriotic, some players will be team
oriented, and some employees will care about doing their job well. The point,
however, is that in such cases the rewarder is not causing the behavior desired
but is only a fortunate bystander. For an organization to act upon its members,
the formal reward system should positively reinforce desired behavior, not
constitute an obstacle to be overcome.

Postscript
An irony about this article’s being designated a management classic is that
numerous people claim to have read and enjoyed it, but I wonder whether there
was much in it that they didn’t know. I believe that most readers already knew,
and act on in their non-work lives, the principles that underlie this article. For
example, when we tell our daughter (who is about to cut her birthday cake) that
her brother will select the first piece, or inform our friends before a meal that
separate checks will be brought at the end, or tell the neighbor’s boy that he
will be paid five dollars for cutting the lawn after we inspect the lawn, we are
making use of prospective rewards and punishments to cause other people to

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Academy of Management Executive

care about our own objectives. Organizational life may seem to be more
complex, but the principles are the same.

Another irony attached to this “classic” is that it almost didn’t see the light of
day. It was rejected for presentation at the Eastern Academy of Management
and was only published in The Academy of Management Journal because Jack
Miner, its editor at the time, broke a tie between two reviewers. Nobody denied
the relevance of the content, but reviewers were quite disturbed by the tone of
the manuscript, and therefore its appropriateness for an academic audience. A
compromise was reached whereby I added a bit of the great academic cure-all,
data (Table 1 in the original article, condensed and summarized in this update),
and a copy editor strangled some of the life from my writing style. In this
respect, I would like to acknowledge the extremely competent editorial work

performed on this update by John Veiga and his editorial staff. I am grateful to
have had the opportunity to revisit the article, and hope the reader has enjoyed
it also.

Endnotes 1 Originally published in 1975, Academy of
Management Journal, 18, 769-783.

2 Charles Perrow, “The Analysis of Goals in
Complex Organizations,” in A. Etzioni (ed.),
Readings on Modern Organizations (Englewood
Cliffs, NJ: Prentice-Hall, 1969), 66.

3 Chester I. Barnard, The Functions of the
Executive (Cambridge, MA: Harvard University
Press, 1964), 165.

4 L.H. Garland, “Studies of the Accuracy of
Diagnostic Procedures,” American lournal
Roentgenological, Radium Therapy Nuclear
Medicine, Vol. 82, 1959, 25-38; and Thomas J.

Scheff, “Decision Rules, Types of Error, and
Their Consequences in Medical Diagnosis,” in
F. Massarik and P. Ratoosh (eds.),
Mathematical Explorations in Behavioral
Science (Homewood, IL: Irwin, 1965).

‘ Miami Herald, May 8, 1994, la, IOa.
6 Goal displacement results when means

become ends in themselves and displace the
original goals. See Peter M. Blau and
W. Richard Scott, Formal Organizations (San
Francisco, CA: Chandler, 1962).

7 San Francisco Examiner, reported in
Fortune, February 7, 1994, 161.

About the Author Steven Kerr (Ph.D., City University of New York) is a visiting professor of management in the
University of Michigan business school, and has recently assumed the position of Vice President,
Corporate Management Development, for General Electric Co. (managing Crotonville). He has been
on the faculties of Ohio State University and the University of Southern California (where he was
Dean of the Faculty from 1985-89), and was President of the Academy of Management from 1989-90.

For permission to reproduce this article, contact: Academy of Management, P.O. Box 3020, Briarcliff Manor, NY 10510-8020

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