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Trust vs. Incentive Compensation: What Joe Torre and the NY Yankees Have to Teach Business

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Let’s talk fundamentals: how to manage and motivate people in an organization.

Which statement do you agree with (from the New York Times)?

1. “[it is] important to motivate people, as most people in everyday life have to be, based on performance.”

2. “It’s not the money that is…the determining factor. It’s…the commitment and trust — because you can’t have one without the other.”

If you agree with the first, you’re agreeing with Randy Levine, New York Yankees President and lead contract negotiator. And with the majority point of view in business.

If you agree with the second, you’re agreeing with the most successful manager in modern baseball history, who just turned down the most lucrative offer in the major leagues—Joe Torre. But with the minority point of view in business.

“When I walked into that room, I saw businesspeople,” said Torre. Too true. The dominant view among compensation consultants, business schools and general management—basically—is that incentives help performance, and that the best incentive is money. Just like Levine said.

Both business and the Yankees see Torre as a unicorn—they refuse to believe people like him exist. Their denial extends to a refusal to acknowledge the fact that his 12-year superior performance was achieved without incentive clauses.

Alfie Kohn has written extensively about the harm caused by reward systems, in business and in education. “Monetary rewards definitely incent people,” he says “—they incent them to get more monetary rewards.”

What they don’t do is incent people to do things for their own sake. Like manage a great baseball team. Or develop great software. Or serve customers.

Really great performance doesn’t come from the extrinsic motivation of rewards—it comes from intrinsic motivation (this is frequently true even on Wall Street, in the business of money).

The hijacking of American business thinking by B. F. Skinner in this regard is astonishing. Despite massive evidence to the contrary (think Babe Ruth: “you mean you’ll pay me to play baseball?”), the mantra continues to be “they won’t play without that pay.”

Kohn cites a study in which children were observed, in order to determine their favorite game. Once the game was identified, the children were offered incentives to play that particular game.

Whereupon they promptly lost interest.

Kind of like Torre, who said he was insulted by making his compensation “incentive”-based. “I’ve been here for 12 years; I didn’t think ‘incentive’ was needed.”

For Torre, it was pride—in himself and in his work—which was demeaned by the Yankees’ rats-and-cheese model. In his words, “It was a very generous offer, no question about it. It still wasn’t the type of commitment that we’re trying to do something together as opposed to what can you do for me.”

This means the Yankees’ incentives worked, all right—they incented a consummate team player to quit the team.

The Yankees say they really wanted Torre back—which is either a lie or reveals the depths of their denial. Because if Levine, Steinbrenner et al really wanted him back, they would make him an offer that restored his pride. Yet—they’re too proud to do that.

So here’s the real irony. The thing that drives both their own behavior and Torre’s—pride—is something they don’t believe exists.

When you believe in a philosophy that is contradicted by your own behavior, that’s some serious denial.

If your company’s compensation people get the bright idea of incentivizing trust—“I know, let’s give them big rewards for behaving selflessly!”—send them to the Bronx. The Yankees’ front office is their kind of place.

How Sales Contests Kill Sales

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Salespeople are motivated by money and competition.  If you want them to sell more, offer more money, and have them compete for rewards.  The sales contest is the perfect motivational combination.

Or so goes the conventional wisdom.  But it’s wrong—and many of the best salespeople will tell you so.  Here’s why.

Money and competition are about getting more money from your customers than other salespeople can get from theirs. And contests are typically short-term affairs—usually a matter of months, a year at most.

Salespeople in a contest are therefore in a rush to see who can extract the most cash out of his customers the fastest.  As one of the hoary old “jokes” about sales goes, “selling is the fine art of separating the customer from his wallet.”

I don’t happen to think that joke’s funny, and I doubt too many customers do either.  But that’s the mentality fostered by a race to extract maximum money per short term time period.

It turns customers into objects.  It telescopes time into the (very) near future.  And so it flies in the face of developing relationships based on helping the customer, and based on a longer time-frame that allows the evolution of strategies beneficial to both seller and buyer.

Here’s the paradox (there always is a paradox when it comes to trust).  Sales contests are usually held to juice up short-term results.  But the best short term results actually come from the ongoing execution of long-term strategies.  Sales contests actually hurt long-term performance.

The mania for measuring short-term has led many companies to execute a massive faux pas—managing for the short-term.   You know the saying: “you can’t manage it if you can’t measure it.”  The unspoken corollaries are, “more measurement is better,” and “if we can measure it short term then we’d better manage it short-term.”

None of it is true.  If you were to manage all the other relationships in your life this way—maximizing the short-term monetary benefit you can extract from your spouse, your friends, your children—then you would live a shallow life that will come to bite you.  It is no different in business.

Do you grant your loyalty and future business to someone who views you as primarily a source of their own short-term financial gratification?  If not, why should you expect anyone else to?

Sales contests are just one of the more obvious manifestations of this mania for short-term, treat-‘em-as-wallets, manage-like-you-measure mentality. It infects comp systems and sales process designs as well.

If you’re a sales manager, measure short-term results—but teach everyone that the best way to get them is to manage long-term.

If you’re a salesperson, then—unless you’re a year away from retirement and don’t give a damn about your reputation—act as if you plan to be in service to your customers for a long, long time.

That’s how they return the favor.

And there’s that paradox again.  The best way to make money is to stop selfishly looking to make money.  Instead, be trusted—by being trustworthy.