Reward systems and culture – MBA Learnings

My favorite learning from my course on Leadership in Organizations was the link between reward systems and culture.

I have struggled with questions around culture for a long time. In the teams I’ve built over the years, I have found that I have succeeded and failed in equal measure on culture. Leadership definitely influences culture. But, I was always left with the feeling that it isn’t just about leadership.

The insight from the class is that our best lever to changing culture is changing the reward system. Many seemingly disjointed learnings and experiences from the past few years clicked right into place.

Let me explain – every organization or team has a reward system comprised of tangible and intangible rewards. Tangible rewards are typically salaries and bonuses. Intangible rewards are what we decide to celebrate – e.g. in organizations where the senior management celebrates failure, failure is an example of an intangible reward. Every organization has quirks – some celebrate data-driven decisions, others celebrate good research while some others celebrate feats of engineering. This is, then, how leadership influences culture. Data-driven leaders encourage data-driven decisions (think Jeff Bezos), engineering-driven leaders reward feats of engineering (think Larry Page), etc. It is vital leaders take the time to build intangible reward systems because company cultures can end up feeling weak otherwise. And, outstanding organizations tend to always have strong, almost cult-ish, cultures.

This has so many interesting implications for us. I’d like to pick 3 –

1. If you’ve wondered why change initiatives regularly fail at large organizations, a big contributor is leaders not supporting change messages with change incentives. Saying an organization will support “disciplined experimentation” or “sales force collaboration” and not changing incentive systems to reward failure or team work changes squat.

2. Every time we lead teams, let’s be very conscious about what we celebrate and what we tolerate. We end up getting the behavior we tolerate and what we celebrate become the intangible rewards. So, if you want to encourage crazy ideas, celebrate crazy ideas and if you want to see innovation, encourage and celebrate failure. Whatever happens, pick something. Not picking is picking too.

3. Finally, we all have personal cultures. Let’s think about what that culture should be.. and what behaviors we must reward to get there.

Cultures persist. To change a person or organization, we must begin with changing culture. The good news is that we influence it with our reward system.

That doesn’t necessarily make changing culture easy… but it sure is worth the effort.