On Toyota, Rewards & Balance

Could rewards have played a role in Toyota's recent and spectacular fall - a fall which has led to the global recall of nearly 4.5 million vehicles and is costing the company $155 million a week in lost sales?

So posits Dr. John Sullivan, author, speaker and San Francisco State University professor in a recent Think Piece for ere.net titled How HR Caused Toyota to Crash".  Here's an excerpt of what he had to say:

The mechanical failures were known to Toyota leaders long before corrective action was taken, and many close to the issue are indicating that the company took decisive action to hide the facts and distort the scope of the problem. The underlying problem of failing to act on this critical information in a manner consistent with Toyota’s brand is again a rewards issue similar to that at Enron. When the organization disproportionately rewarded managers for cost-containment versus sustaining product quality, it created the incentive for everyone involved to ignore the facts and to deny that a problem existed. Employees who are well-trained and subject to balanced rewards and performance monitoring systems would not have allowed the situation to grow as it did.

Buy that?  Not everyone who read Dr. Sullivan's piece does, as you can see by scrolling down through the comments.  And knowing nothing concrete about Toyota's reward programs, I am certainly in no position to say they either were or were not a factor in the company's massive failure.

My point is only that they could have been.

And I think it comes down, once again, to the issue of balance in reward plan design.

Rewards, especially incentives, have powerful potential.  This is at one of the reasons they generate so much controversy and debate; when ill-directed and poorly designed, they can leave havoc and disfunction in their wake.  This is also why balance is such an important part of incentive plan design.

I posted a few weeks ago about whether it is a good idea to incent safety.  I struggle to get behind the idea of addressing safety through incentives; like some of the commenters to that post, I believe that safety is rooted in core values and culture.  Employees either buy into the values and culture ... or they should be shown the door.

Same thing can be said about quality. 

And yet, I think these elements have a role to play in an incentive plan, and the role is that of counterweight.  In a world where variable pay will be an increasingly important part of everyone's compensation package, if you are going to incent productivity, you'd better include a counterweight measure of safety.  If you're going to incent profitability - or cost containment - you'd better include a counterweight measure of quality.

So I wonder - in the balancing act of incentive design -  if the elements of our work environments and outcomes actually fall into two different categories; those that we measure in order to drive them ... and those that we measure in order to protect them.

Your thoughts?

Comments

[E. James (Jim) Brennan]

The prime principle of human behavior is that behaviors that are rewarded tend to be repeated. No one ever does anything that they don't believe is in their own best interest. (Think about it... that is one SCARY concept! but it is undeniable.)

Defining desired outcomes for appropriate reinforcement is the toughest thing in the world. Easy to cite the Big Four metrics (quality, quantity, time and costs), but how you create incremental improvement without undercutting the base foundation is a delicate dance. Parameters are required, where you balance expectations and rewards and incentives and such while requiring a certain minimum maintenance level. Frequently, it is a matter of priority weightings, although some enterprises create deliberate conflicts, like our tripartite national government with constitutionally-established balancing among conflicting Federal branches, or our adversarial legal system, mirrored by the required tussles of union-management relations or the traditional spats between QA v. Mfg departments where one pushes for quality while the other goes for quantity.

Making one CEO responsible for keeping things good and simultaneously making them better is simply another example. The lessons go back to prehistoric times. It's why those at the top get the big bucks, supposedly.

[Ann Bares]

Jim:

Great points. And it is that prime principle that makes incentives so effective ... and so scary. Why we both love and hate them so strongly, I suppose - but also why we can't seem to resist using them, even when we know we probably shouldn't.

Is THAT why those CEOs get the big bucks? ;-)

[Derek Irvine, Globoforce]

Excellent post, Ann. That's why we so strongly advocate after-the-fact recognition of behaviors and actions that both reflect the company values as well as contribute to achieving objectives. In Toyota's case, if recognition was only given for cost saving measures that contributed to IMPROVED reliability, safety, etc., then this could have been avoided.

As I've said elsewhere: This is where the “strategic” component of recognition becomes critical or you could end up with the “different kind of deviance." You must positively reinforce employees only for those actions that reflect the company values while achieving the strategic objectives. This approach ensures employees who, for example, increase productivity but do so by harming the environment will not be rewarded for their efforts. Values-based recognition is the key to ensuring employees display the right behaviors in achieving the company goals.

That's from a blog post I wrote on deviance and recognition here: http://globoforce.blogspot.com/2009/07/self-esteem-sabotage-and-psychic-income.html

[Ann Bares]

Derek:

Absolutely agree, and that's why all components of rewards - including cash incentives as well as non-cash recognition - must work in balance to reinforce company objectives.

Thanks for sharing the comment and the link back to your post!