Culture Plays Key Part In Making Incentives Work

Humor depends on truth, and a funny sequence in a currently running situation comedy involves a television executive making a cameo appearance on one of his shows. Suddenly, reflexive actions become an amateur actor’s overdone gestures. When he “walks” into the scene, he resembles the just oiled Tin Man in The Wizard of Oz.

Incentives, the subject of our cover story, are a given in human interaction. We offer them. We respond to them. Like the idea of “luck,” they can be, and often are, the subjects of studies. We all have our stories.

Uwe Reinhardt, the Princeton health economics professor, says that he can always tell when a European or Asian student hands in an exam because it’s so neat. Some American youngsters can write well, but “you would be shocked” at how much of their work is nearly indecipherable.

“And why is that?” says Reinhardt. “I recall looking at my own kids’ homework and, from time to time, ripping it up late in the evening, forcing them to redo it. The kids protested that it was perfectly all right, as their teacher accepted it. I told them that was fine, but I did not accept it. I thought it was rude to hand in sloppily written work. It did not take long before neater work became instinctive to them — just as I was literally slapped once as an apprentice when my boss found my work sloppy.”

Edwin Locke, PhD, a retired professor of management and psychology at the University of Maryland, says that incentives have always been used in business, but usually with tight monitoring. He cites as an example the pay-for-performance program instituted by Jack Welch when he ran General Electric. “He had very stringent controls.”

Maybe the best control is pride in workmanship, as Reinhardt says in a sidebar to the cover story. He believes that physicians are as much swayed by public rankings as they are by financial rewards. Clinical executives at insurers have probably noticed this as well.

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