Incentives continue to ruin. Disguised as solutions.

In one issue of the WSJ in April 2017 there were separate stories on 4 high profile corporate failures. But the WSJ did not connect the dots that link them: incentives. The WSJ stories were: the United Airlines passenger dragging "re-accomodation"  incident, Volkswagen Diesel-gate, and Wells Fargo illegal sales tactics. The 4th was an update on the April 2010 BP Deep Water Horizon oil rig disaster.  7 years after the explosion BP has finally cleared its books of the billions it cost to recover from the incentives related to safe operations.  Do you recall that the oil rig received a safety award the very morning of the explosion?  The VP in charge of safety got his incentive --so did many others along the management hierarchy.  11 people lost their lives on the rig, not to mention the environmental damage.

Now it is announced by the BBC that United CEO, Munoz, and other executives will have their pay tied to customer satisfaction.  Oh, sure, that is the solution to the problem of putting short-term profits over sensible management approaches that don't involve incentives.  At least that is what people believe about incentives. And, incentives DO get results --typically including negative, unintended ones such as short-cuts with safety, lies about diesel mileage, disrespecting/dragging customers to gain more profit, and cheating to increase the number of customer accounts the bank has.

Economists promote the use of incentives as a way to manipulate behavior. Alan Greenspan, an economist, the Fed Chair, and a big believer in incentives, said he was surprised by the 2007 financial meltdown because he did not believe that self-destructive, short-term  performance incentives would triumph over sensible longer-term decisions. 10 years later he is still surprised. Apparently evidence does not help him see beyond his beliefs --to connect the dots. As Dr. Deming said, "Economists have led us down the wrong road." Indeed. But then, Deming knew that because Deming connected the dots.