No Incentive, Lousy Employees

Running my own company has me thinking more often about business and economics. Lately, I've been considering the effects on an organizations of having an effective incentive program. After walking into the post office today, I have no more doubts: The inability to fire someone has seriously negative impact on performance. The same can be said for fixed pay structures (think teachers union).

So what happened to me today? I had to run to the post office "quick" to drop off a package. It was about 1:00 when I walked in and there were about 5 or 6 people in line in front of me. A pretty decent sized line for my small post office down the street. Now you would think that, being right around lunch, a popular time to run errands like going to the post office, that there would be 2 or 3 people working behind the counter.

You would be wrong. There was just 1 person.

You would think that if 5 or 6 people were standing in line and waiting, on average, 15-20 minutes to get service (which is how long it took for me), that someone else would be called out to work one of the 3 empty counter spots.

You would be wrong again. Instead, the one person behind the counter just kept plugging away, methodically and slowly, servicing each customer in line. I know they have more employees because I've been in there before and seen 2 of them working, albeit very slowly, while a third person putzed around doing nothing as a long line of people was gathered.

So with 20 minutes to kill while standing in line, I started thinking about economics. A common theory in economics, and most private businesses, is that to get someone to do something, there must be an incentive.

Consider the following examples:

1. I ask you to dig a small ditch for me but tell you I'm not going to pay you anything. You'd probably refuse.
2. I offer you a $1000 to dig the same ditch. You'd probably do it.
3. I tell you I'll pay a $1000 whether or not you dig the ditch for me. Almost everyone would take the $1000 and a lot of people wouldn't dig the ditch. Those motivated by guilt might do it but even they would probably do a lousy job of it.

Being a government employee is pretty much like option #3. It's almost impossible to get fired and your pay structure is determined almost entirely by how long you've been working. Your pay has little if anything to do with how good of a worker you are. So, at my local post office, as long as they show up for work, they're good to go. The problem is, once they've shown up for work, they have little motivation to hurry, make customers happy, or do anything above and beyond the absolute minimum they must do.

A similar position holds for those in the teachers union, the UAW (auto workers), and airline unions. Is it any wonder that our government, schools, auto industry, and airline industry are all in trouble? It's not a coincidence, it's a lack of motivation. Make it clear to all of them that they can get fired for not performing and you'll watch productivity skyrocket.