The cobra effect or perverted incentives

Today, I’m introducing you to the cobra effect and its impact on your organization’s bottom line. It is important to keep this effect in mind when defining the performance indicators and especially the objectives for each sector or individual. It would be a pity if the way of measuring and rewarding caused the opposite effect of the desired one!

You sometimes need to build a reward program to motivate your team. A program that is too simple can generate results that are contrary to those expected. Do your teams bring you rat tails, or do they actually contribute to the success of your organization? On the other hand, is your profit-sharing system simple enough for them to understand and contribute directly?

The history of the cobra effect

It is named after a legend of colonial India. Believing that there were too many cobras in the city of Delhi, the authorities decided to set up a reward for each cobra head brought back. The measure was very successful, until the administration discovered cobra farms. They then stopped the awards program. As a result, breeders released their animals, increasing the number of cobras initially present in the city.

Another well-documented case is that of rats in the city of Hanoi during the French colonial period. In 1902, faced with a sanitary problem of plague, the administration sought solutions. They determined that rats were the cause of the plague. Indeed, rats are carriers of the disease and swarm in the sewers (yet modern) of the city. With a 5 why, they could have gone further in their root cause analysis. They might have eradicated a problem that still exists in Hanoi, but that’s another story.

The administration set up a team dedicated to the deratting of the sewers. However, the thankless and poorly paid task degenerated into a labor dispute, as explained in Michael G. Vann’s “Of rats, rice and race. The administration then offered the population a penny for each rat tail caught. The entire rat would have imposed too much work on already overburdened health authorities. Everything was fine until the administration discovered, in addition to rat farms, tailless rats in the city…

Use incentives wisely

Human are so made that they needs motivation to accomplish certain tasks. I won’t go back to the intrinsic motivations (sense of accomplishment), which are difficult to pervert. Financial incentives, extrinsic motivators, are the most at risk. We try to gain the maximum with the minimum effort.

Since human imagination and creativity have relatively few limits, there is no point in trying to guess how anyone could pervert the system. Instead, we must ask ourselves what the objective is. Is it clear to the management, as well as to the teams? This is the first step of alignment. If the people of Hanoi had understood why the government was trying to eliminate the rats, the outcome might have been different.

In this case, the objective is not only to reduce the number of rats in the city, and in particular in the sewers. The objective is to prevent plague epidemics and reduce mortality. Today, one indicator could be the number of rats passing by cameras placed in different sewers in the city every day. In the absence of an infrared camera and vision system to make this calculation automatically, other assessments could have provided information on the trend of rat use of the sewers.

Measuring expected performance

We need to be creative and go beyond the indicators we know to properly assess the organization’s progress. Objectives should measure real progress or tangible improvement in the organization’s performance and results. It is much more difficult to define a fair reward program based on good indicators, because it is necessarily more complex.

Would the measure have had the same success (beyond the farms and tails cut off) if the authorities had implemented a reward system that would have indexed the reward per rat tail according to the decrease in the number of rats per km2? The number of tails reported per individual should have been recorded and the reward paid the following week… I’m not sure there will be as much of a craze for this activity.