1: A daycare center in Israel wanted to encourage parents to pick up their kids on time. Teachers were upset because they were regularly late getting home to their families.
“More and more of the parents,” Fred Kofman writes in The Meaning Revolution, “were coming late to pick up their kids, regardless of the appeals of the woman who ran the center.”
Imagine being the daycare center director. What would you do?
She decided to institute a small fine to incentivize parents to be on time. “Being late wouldn’t just break their commitment; it would also have a financial cost,” Fred explains.
2: What happened? Things got worse.
“Before the director imposed the fine, roughly a quarter of the parents showed up late,” Fred notes. “Several weeks after she imposed the fine, about 40 percent of the parents were late.”
What exactly is going on here? Turns out, “parents interpreted the fine not as a punishment for a transgression, but as a fee for extended daycare service,” Fred writes.
“And because the fine was small, they were happy to pay it.”
By instituting a fine, the daycare signaled that being late was no longer “an ethical breach,” he observes. “Being late stopped being ‘wrong’; it became a service that parents paid for.”
3: The lesson? “Financial incentives can dangerously reframe the question in people’s mind from ‘Is this right?’ to ‘Is this profitable?'”
And once the ethical dimension is removed, it’s difficult to re-instate. “When the fines were lifted at the Israeli daycare center, the percentage of late parents increased to about 50 percent,” Fred writes.
Which makes “perfect economic sense,” he notes. “When the fee for extra care went down to zero, demand increased. Being late simply became even more convenient. The ethical concerns had been swept away.”
Fred explains there is a similar law regarding workplace motivation: Bad incentives drive out good incentives.
“The more a leader relies on financial incentives, the less he or she will be able to rely on engagement. And the less the leader can rely on engagement, the more he or she will need to rely on financial incentives.
“It is a vicious and futile cycle because financial incentives cannot possibly produce excellence. Financial incentives can never drive people to do good work because they want to, because they care, and because it is the right thing to do.”
More tomorrow.
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Reflection: Can I think of any situations where a financial incentive did not lead to the desired outcome?
Action: Journal about the experience. What went wrong?
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