Incentives: Handle with Care

Hallie Tomlinson – 2 Honorbound

In Naked Economics, Charles Wheelan says, “Incentives matter.  When we are paid on commission, we work harder…”[1]  However, are all incentives good?  All companies use incentive systems, and these incentives must be handled carefully in order to prevent incentive exploitation and perverse incentives.  An example of a perverse incentive in a company is Wells Fargo’s employees creating fake accounts and or signing up customers for credit cards without customer’s permission.[2]  Wheelan describes perverse incentives as “the inadvertent incentives that can be created when we set out to do something completely different.”[3]  In order for a company to regulate an effective incentive, they must make sure that their incentives do not tempt employees to cheat and abuse customers.  An example of a company that uses a good incentive program is Southwest Airlines.

In 2016, over 5,000 employees abused Wells Fargo’s incentive that rewarded employees for meeting sales quotas and increasing the number of new accounts.  Wells Fargo’s employees abused this system by opening unauthorized accounts and transferring money “from customers’ accounts to the fraudulent accounts to make it look like the account was viable” to meet the bank’s goals.[4]  Wells Fargo’s incentives, meant to encourage employees to meet sales goals, lead employees to cheat and misuse customers.  This example highlights how perverse incentives can arise in a company.

Southwest Airlines, a company based on customer service and reliable airfare, encourages and rewards employees’ behaviors and performance through an incentive program called SWAG (Southwest Airlines Gratitude).  “The centralized platform helps to ensure compliance, reward equity and accountability for the more than 46,000 Employees.”[5]  Southwest Airlines employees can earn SWAG Points by a Southwest Leader or a peer saying “great job,” receiving an award like Winning Spirit, attending the Annual Awards Banquet on one of the company’s milestone anniversaries, exceeding in a particular task, or demonstrating teamwork across the system.”[6]  Southwest Airlines employees can “redeem Southwest Airlines Gratitude (SWAG) Points for Guest Passes for friends and family, Rapid Rewards Points, merchandise, gift cards, or event tickets.”[7]  This program does not allow Southwest employees to cheat the system, customers, or each other. SWAG Points, “the common currency for recognition at Southwest,” encourage employees to go above and beyond to enhance the customer experience each day.  This program provides employees an incentive to work with each other rather than against each other and work hard each day, emphasizing teamwork, collaboration, and dedication to the job.

Wells Fargo employees’ abuse of the company’s incentive in 2016 proves that incentives must be handled with caution.  A company’s incentive system should not lead employees to cheat and exploit customers.  The Southwest Airline Gratitude program is a good incentive program that benefits the company and employees.  In this program, employees have an incentive to work hard, benefiting the company.

 

[1] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 34.

[2] Jenkins, Holman W., Jr., “Wells Fargo’s Incentives Go Awry,” The Wall Street Journal, September 20, 2016, http://www.wsj.com/articles/wells-fargos-incentives-go-awry-1474413032.

[3] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 36.

[4] Osteryoung, Jerry. “Small business: Incentives must be handled carefully,” Bradenton Herald, September 22, 2016, http://www.bradenton.com/news/business/biz-columns-blogs/article103392832.html.

[5] “Driving Performance Using Recognition,” Inspirus, accessed October 19, 2016,  http://www.inspirus.com/hubfs/Case-Studies/SWA-Case-Study.pdf?t=1445010316405.

[6] “WorkPerks,” Southwest, accessed October 19, 2016, https://www.southwest.com/html/about-southwest/careers/workperks.html.

[7] “WorkPerks,” Southwest, accessed October 19, 2016, https://www.southwest.com/html/about-southwest/careers/workperks.html.

Photograph – “5 of the Most Unusual Yet Brilliant Staff Incentives,” Chartered Management Institute, accessed October 19, 2016, http://www.managers.org.uk/insights/news/2016/april/5-of-the-most-unusual-yet-brilliant-staff-incentives

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