Incentivizing the Wrong Behavior Can Lead to Poor Results

Easy-CommissionIn my last blog post about commissions / incentives, we  talked about Car Salesmen and their Commissions. This time, why don’t we use bus drivers as an example of the consequences  of how incentivizing the wrong behavior can lead to poor results?

Incentives are an important part of any business that wants to leverage rewards for outcomes that can benefit both the employees and the company. The thing is, without proper research, it’s so easy to give out incentives for the wrong things.

Let’s take for example this research that was done by Ryan M. JohnsonDavid H. Reiley, & Juan Carlos Munoz. In a paper entitled “The War for the Fare: How Driver Compensation Affects Bus System Performance”, they talked about how two different salary systems were applied to bus drivers in Santiago, Chile.

One salary system paid bus drivers a fixed salary while the other salary system paid based on the number of passengers the drivers were able to transport during their shift. The researchers’ findings were very interesting. The original research is quite a long read, so we will summarize it for you:

Per-Passenger Incentive Drivers

  • In their desire to earn more, the drivers tend to speed up and drive quickly between bus stops to get ahead of the other buses and get more passengers.
  • Because they speed between bus stops in an effort to pass all the other buses, they are more prone to accidents.
  • When they see a lone passenger waiting at a bus stop, they usually don’t bother stopping because they consider it a waste of time.
  • Positive point: Passengers don’t have to wait long, because another bus usually comes around quickly.

Fixed-Salary Drivers

  • Because they earn a fixed wage, they are in no hurry to get from one bus stop to another, making their driving a lot safer but a longer trip.
  • Sometimes, however, the drivers are in no hurry to leave the bus terminal either.
  • Passengers feel a lot safer because drivers wait for them to be properly seated before setting the bus in motion.
  • Because the drivers are in no hurry, passengers usually have to wait longer at the bus stops.

What did you notice in the behavior of the drivers given their commission plans? The most striking observation is that per-passenger drivers were more competitive (bordering on aggressive) in getting more passengers so that they can earn bigger salaries, resulting in a short waiting time for the passengers at the bus stops. The biggest downside of this behavior, however, is they are highly accident prone.

Fixed-salary drivers on the other hand, make passengers wait longer at the bus stops, but are able to ensure everyone’s safety.

Looking at their salary schemes, it’s easy to find that there are a lot of areas of opportunities in both of them. One is not completely better than the other. If they are keen on improving the bus passengers’ experience, the research suggested that it would be wise to “see if there are alternatives that can combine the positives of the two systems while minimizing the negatives.”

I think the researchers’ suggestion is a good rule of thumb when coming up with an incentive scheme. We definitely don’t want to be incentivizing the wrong behavior, because we might not end up getting our desired outcome in the long run.

If you’d like to get tips on how to come up with an incentive scheme that works, you might want to click here:

The Power of Incentives



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