December 8th, 2010 by Jeff Proctor
Thanks to Ann for the invitation to join the blog. I’m looking forward discussing ideas with everyone each week!
I’ve found myself oddly intrigued by the National Football League’s handling of fines and penalties this year. The latest act of tom-foolery by Andre Johnson and Courtland Finnegan resulted in $25,000 fines for each player. Johnson and Finnegan forcibly removed each other’s helmets and delivered direct blows to the head. There are two strange things about this situation: 1) we rarely see hats-off brawls in football (this was closer to what one might expect from a hockey fight), and 2) the amount of the fines is really confusing. Consider these other fines from the 2010 season:
- Brandon Jacobs ($20,000): “For yelling at Eagles fans during last week’s loss to Philadelphia. Jacobs was observed by an NFL security representative making obscene gestures and yelling obscenities toward fans in the stands”
- Will Witherspoon ($40,000): “Laid a nasty little helmet-to-helmet hit on Donovan McNabb late in the Titans loss to the Redskins.”
- Richard Seymour ($25,000): “His ejection for hitting Steelers quarterback Ben Roethlisberger in the helmet. Seymour hit him with an open hand in the jaw.”
(More fine info is available here.)
These fines illustrate in interesting pattern. Consider the fact that Johnson and Finnegan were each fined only $5,000 more than Jacobs, who simply yelled at some fans. Witherspoon hit someone with his helmet during a legitimate play (although I’m sensitive to the fact that the NFL is trying to avoid these types of hits).
Perhaps the most interesting situation concerns the Seymour fine. He received the same penalty as Johnson and Finnegan, despite the fact that he hit a player who was wearing his helmet. In essence, Johnson and Finnegan received no penalty for the extra act of removing their helmets and delivering direct punches to the head. In order to keep a player—already intent upon punching another player—from removing that player’s helmet and punching him in the face, the penalty must be greater for the latter behavior.
Economists who study the legal system call this “marginal deterrence.” They are interested in the development of penalties that ensure that those who commit lesser crimes are not prompted to commit greater crimes due to the lack of more significant punishment. For example, if the punishment for armed robbery was the same as that for murder, armed robbers would be more likely to murder those who try to interfere with robberies.
Now to the point: looking at marginal deterrence in society—and in sports—challenges my thinking on incentives within firms. I tend to fall into the trap of viewing incentive issues as black-and-white, all-or-nothing situations (i.e., I either have incentives to create value or I don’t). However, I think something akin to marginal deterrence (both in a positive and negative direction) certainly has a role in shaping our thinking about organizations.
Of course, we want to make sure that people have incentives to show up, do high-quality work, and contribute to the value creating activities of the business. The work on marginal deterrence, however, pushes us to dive further into the issue. To misuse a popular book title, do employees who are able to achieve “good” have the incentive to do “great.” When they fail, do they have incentives to right the ship or plunge further into the depths of the sea?
Incentives are clearly important in business. MBM counts incentives as one of the five key areas in which to look for solutions to problems that arise in firms. Limiting our thinking to an on/off, black/white understanding of incentives is dangerous. Ideally, incentives work at the margin to limit the downward spiral of bad behavior and turn good behavior into great.
Can you think of examples where the marginal incentives do or don’t work in your business? What can we do to get things moving in the right direction?