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Could Transparency Unlock Performance Incentives

Recently, I flashbacked to late 2008. The trigger? Catching up on Planet Money episodes. The flashback? A discussion on financial incentives for design and construction performance. In it, one person compared the Architectural and Medical professions, to point out "the absurdity" in financial incentivizing performance.
It would be absurd for a cancer patient to propose to a surgeon a bonus for each year he or she would live after an operation. One would hope the physician would be insulted.
Well, Can Hospitals Save Money By Making Doctors Squirm? might complicate this argument with an experiment at an Akron hospital. The experiment is testing how to realign incentives to both improve care and control costs. First things first, the Planet Money team clarifies how doctors currently paid:
A patient gets a bypass operation. Medicare pays the doctor and hospital for that operation. However, if that patient [is readmitted], the doctor gets paid for [subsequent] procedures, as well...So, if a doctor screws up and the patient has to come back, he makes money. No doctor wants to make mistakes, but even doctors here know the incentives are crazy.
Not pretty, but there is no question that incentives are complicated. Daniel Pink argues that financial incentives don't motivate knowledge workers to higher performance; we need mastery, autonomy, and purpose. But even when the Pink trifecta is present, economics can certainly confuse behaviors.
The experiment started just 21 days ago, so doesn't have any answers. In fact, it may not have any answers at its conclusion. However, I think this early report offers a key to balancing incentives in many professions: transparency. From the episode:
If you tell a doctor how much he costs and how they rank against others, behaviors change. Instead of competing for grades, they are competing on metrics related to how much they cost. Whose surgeries start the latest? Who orders the most expensive lab tests?
To try this experiment yourself, you will need to think about:
  • What defines performance? Perhaps cost, but it likely isn't that simple. For example, it could be allocation of manhours, rather than total number of manhours.
  • How will you communicate metrics? It may not be the Akron hospital's tense meeting or Microsoft's stack rank, but your team needs to know their individual metrics, how they rank against, and why they ranked as they did.
  • Can you be patient? This is an experiment. It will take time to see the impact, and the results won't be perfect the first time around.
Listen here for the full Planet Money episode. And ask yourself, is there a role in design and construction for transparency in performance incentives? Leave a note in the comments or tweet to me on it!

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