If you see reasonable people doing stupid things, look at the reward system
I had the good fortune at attend the 2016 Deming Institute Conference in East Lansing, Michigan this past weekend. There were many great speakers. During a panel discussion, David Langford made this statement, “If you see reasonable people doing stupid things, look at the reward system as the cause.”
This point was reiterated by Tripp Babbit in the most recent Deming Podcast, “10 Minutes with Dr. Deming – Lessons From Wells Fargo.” Tripp shares how Wells Fargo had a goal focused on profit and developed and used a system of rewards, bonuses and incentives to achieve that goal; leading to fraudulent sales practices and ultimately 5,300 employees being fired for trying to achieve their otherwise unattainable goals.
Here’s a link to interesting article from the Wall Street Journal describing how the Wells Fargo incentives system caused the problem for the company and its customers (and ultimately 5,300 employees): Wells Fargo’s Incentives Go Awry But the executives are still there. This USA Today article describes CEO John Stumpf’s testimony at the U.S. Senate Committee for Banking, Housing and Urban Affairs.
Yes, it seems that reasonable people will act rationally given the system they are in. And it may cause them to do stupid things. What causes the executives to do stupid things like create incentive programs? The prevailing style of management comes from a system of dysfunctional beliefs. There is a system of “functional beliefs” that serves as an alternative. This is Dr. Deming’s System of Profound Knowledge. It’s free and available to anyone who wishes to learn and apply it.