Why Did Indians Suddenly Start Breeding Cobras?

While India was a colony of the British, suddenly a lot of Cobras appeared in Delhi. The government got worried and to eliminate them offered a bounty for every dead Cobra head. They thought that Cobras will be killed, rewards claimed, end of Cobras.

The story did not turn out quite that way. Cobras were killed, but the incentive of reward was large so they started breeding Cobras to kill and claim the bounty.

By the time the reward system was pulled back, the snake problem was worse than before.

Incentives work in more insidious ways than first-order thinking.  I read a blog about incentives and found it interesting enough to borrow the ideas for my readers.

We all know carrot & stick. Motivate & incentivise employees or children by giving the rewards. Incentives can be material or even intangible like an award, or appreciation, or mention on the company hall of fame or school yearbook.

But sometimes they go awry like above.

Jeff Bezos of Amazon is an incredibly smart thinker. His letters to the shareholders are truly path-breaking on his completely different way of thinking. If you haven’t read his letters you can find a link here.

Amazon believed that it’s a good idea to have a few employees leave and some turnover was healthy. So there was a firing target set for managers. Management believed this will motivate managers to fire the underperformers creating an efficient organisation. A firing target would reduce the negativity and resistance from letting the inefficient go.

The result was something different. Managers started hiring people who they would later fire to meet the target. Not a great outcome.

Wells Fargo, a huge systematically important American financial services company paid millions of dollars in fine to the Consumers Financial Protection Bureau and other government agencies due to misaligned incentives.

The top bosses at Wells Fargo had very stiff, unachievable targets for the employees. Apart from that, the compensation system was based on the number of Accounts opened. This led to the opening of 1.5 million fake accounts and 5 lacs credit cards issued without the customer’s consent.

The scandal led to 5300 employees being fired and the Wells Fargo paying about $3 billion in fines to the Securities & Exchange Commission & the US Department of Justice.

Bodyshop is a socially conscious producer of the skincare range. They produce a line of products using Shea Nuts which are grown in abundance in Ghana to produce Shea Butter. In the 1990s as a part of their philanthropic efforts, they decided to pay 50% above the prevailing prices to the Ghanaian farmers for Shea Nuts. On top of that, they paid a premium for every kilogram of Shea Butter produced.

The Ghanaian farmers decided this was too good a deal to pass and where two tons of Shea butter was normal, produced 20 tonnes. This was nearly four times what Body Shop wanted. To make matters worse, Body Shop realised that they had overestimated the demand for Shea butter and cut back their orders even more.

Prices of Shea butter plunged and the farmers were left much worse off than before.

Ultimately, as the above examples show, incentives may work very well but needs to be followed up on whether they have created any unintended consequences. The targeted goal has to be achieved and the target should not become an end in itself.