practices allocate each pool to a product; and the financial system provides accurate information on just how pollution prevention, or the lack thereof, is affecting costs. The plant tracks all waste streams, for example, and either charges business units for waste disposal or credits them for revenues gen- erated through recycling. “To allocate the cost of all material passing through,” RAND writes of solid waste disposal, “Mehoopany simply weighs each container coming from a product module to the transport point and allocates the cost proportionally. While this method is not absolutely pre- cise, it is close enough to allocate costs.”
The fact that all employees own Procter & Gamble stock is also part of the training program. Employees are shown exactly how environmental management affects company earnings, and can see the impact of their effort on the bottom line.
A local recruiting market is determined by a bunch of economic and demographic characteristics. These characteristics, often called supply-side factors, represent the market quality. On the one hand, recruiters are given missions, or recruiting goals. If these goals do not match up well with the market quality, recruiters may not have incentives to exploit a market’s potential. If the goal is too difficult, recruiters become discouraged and reduce effort. On the other hand, if the goal is too easy, recruiters don’t have to work so hard to achieve success (“Made Mission, gone fishin”). In either case we actually end up observing an outcome that’s significantly less than what the market would normally bear.
As Dertouzos concludes, the key is to set a just-beyond-possible goal:
Frankly, what could be more important in terms of managing people? Set a reasonable goal and reward them for either mak- ing it or failing to make it. Make it equitable, reasonable, and consistent with the organization’s mission and you can set it at an individual level so people have incentives that are well in line with the organization.… Hiring the right people is important and motivating in other ways but trying to come up with indi- vidual incentives that are well aligned with your organization’s incentives, rewarding people for doing the kinds of behaviors that achieve those organization’s incentives, that’s about as essen- tial to management as you’ll ever want to be.
Dertouzos reports that there is evidence that far-beyond-possible mis- sions may have undermined recruiter morale, incentives, and effort in the late 1990s and early 2000s. Recruiters did better in expanding the market when missions were realistic, the irony being that the Army might have actually done better had it set it targets lower.
Once the goals are set, organizations must create the incentives for action. As RAND has learned through its ongoing work on proactive envi- ronmental management at firms such as Hewlett-Packard, DuPont, Ford Motor, IBM, Olin, Procter & Gamble, Volvo, and Walt Disney World Resort, incentives drive virtually every step in the process, including initial interest in environmental management.
At the corporate level, there are obvious reasons to invest in proac- tive environmental management, but being a pretty organization is not one
of them. According to another of R AND’s environmental studies, Intel invests in environmental technology to avoid the long and expensive pro- cess of securing air permits; Xerox’s asset-recycle management initiative is designed to reduce waste; and DuPont is convinced that so-called yield improvement technologiescan increase its environmental reputation, which can only increase sales.
At the business-unit and individual level, corporate incentives must be translated into metrics that measure and reward actual performance. “Met- rics can motivate behavior only if linked to incentives,” RAND’s research shows. “Every firm seeking to improve its environmental management gives special attention to incentives; they tend to choose incentives that are com- patible with their prevailing corporate cultures.”
The incentives need not be financial, however. According to the team,
“the most common form of incentive appears to be a direct, nonmonetary award to individuals who have tangibly improved environmental manage- ment. Firms emphasize the importance of giving such awards often, even for small improvements, to spread the importance of environmental man- agement throughout the organization.”
At Walt Disney World Resort, for example, the incentives have involved a mix of non-cash awards, including Jiminy Cricket pins for mem- bers ofEnvironmentality circles, silver pins for a demonstrated commitment to the environment, and gold pins for a specific environmental accom- plishment. All of the pins are awarded at an annual Earth Day ceremony at Epcot Center, and acknowledged in Eyes and Ears.
This commitment to environmental management extends well beyond Walt Disney World Resort, however. The Disney Company produces an annual Enviroportsummarizing corporate achievements in recycling, waste reduction, and resource and wildlife conservation. The report itself is printed on 100 percent recycled paper certified by the Forest Stewardship Council, and printed in a facility that produces almost zero volatile organic compound emissions.
The company also encourages individual business units such as the Contemporary Hotel at Walt Disney World to create their own environ- mental action programs, which in turn involve everything from individual Jiminy Cricket certificates to a departmental awards program built around 9-inch statues of Sorcerer Mickey (energy savings), Ludwig von Drake (safety and security), and Jiminy Cricket (environmental management).
Incentives obviously send important signals about what gets valued and done. Yet, incentives for environmental management cannot be so powerful that they distract individuals and business units from other important goals,
while negative incentives cannot be so draconian that they discourage risk taking. Thus, the RAND study notes the need to manage failures. “Trial and error offer great potential in any learning organization and are especially important in efforts to refine changes in an ongoing production process. Sys- tematic learning depends on a system that supports flexibility and tolerates the right kinds of mistakes.” Too many rubber chickens converts a culture that rewards trial anderror into one that creates trial forerror.
The study also suggests that some activities are so complex that they either cannot be carefully measured or involve competing goals. In such cases, organizations may choose a set of relatively weak or low-powered incentives over a single strong or high-powered incentive. As such, what gets measured andrewarded gets done. If some tasks cannot be measured, orga- nizations are better off choosing low-powered incentives for the tasks that can be measured. A Jiminy Cricket pin is hardly a reward if Walt Disney goes out of business.
Moreover, even when activities can be carefully measured, the ques- tion is whether the incentives should be targeted at individuals or units.
James Hosek might well answer “it depends.”
In the military, you have a unit that’s going to be on call at some time to deploy and perform its function—that could be a bat- tlefield function, combat function, etc. The individuals in the unit need to work together to get the job done. Well at some point individuals who deploy are going to be with their unit, called upon to do what the unit was trained to do. They were trained as a unit, they were taught to rely upon each other, and they literally may find that their life or death depends on whether their friends in the unit do what they’re doing. In cir- cumstances like that, where the unit is expected to pull together, it’s really difficult to single out any individual as having higher productivity than another. This is a case of a contingency in which the unit must perform as a unit.
On the other hand, let’s shift back to peace time, which is a good 95 percent of the time a person is in the military, or if you’re thinking of a large organization, most of the time it’s not in an ultimate crisis mode where survival is at stake. People who work harder should be recognized—people who are putting in more effort, supplying more ideas; people who are available on the weekends,; people who are willing to cooperate, share infor- mation, work reliably, and exchange information in a trustworthy
way. Those are really good employees and you want to recog- nize them and single them out.
One way of trying to mesh these two things is by treating people equally when they’re in a given status such as a certain unit or a certain rank or pay grade. There is also the possibility of advancement, an advancement that need not be the same for everybody but that could be tailored as you gradually go up. But whatever you do, you can’t improve if you can’t measure what you’re doing. You can exhort people or use rhetoric but basically you won’t know whether you’ve made progress unless you have specific yardsticks to judge against. They can be one person ver- sus another. They can be one organization versus another.
Ultimately, the question is not so much whether incentives matter—
the winnowing process ranked strong incentives as the third strongest pre- dictor of performance. Rather, the question is just which incentives to use.
As RAND’s Susan Everingham cautions, “a lot of my colleagues will just say incentives, incentives, incentives. That’s the economist’s way of looking at the world. But I think it’s more complicated than that. True, if you have the wrong incentives, you’re going to get the wrong behavior. Maybe the- oretically, there is some set of incentives that will get everybody to do what you want them to do, but I would be willing to argue that that set has never been found. And incentives alone are not enough. But they sure can cause a lot of damage if done in the wrong way.”