Do awards motivate business?
(Last of three parts)
Last week we discussed family restaurants recognized by the Michelin Guide, whether locally or abroad. This week, we discuss the impact of awards on a business.
My family and I watched the TV show “La Grande Maison Tokyo,” a culinary drama set in the world of haute cuisine. While the show leans into soap opera tropes, the show’s central tension—between the chefs’ genuine passion for cooking and their sometimes self-destructive drive to win Michelin stars—made for an engrossing and enjoyable watch.
This tension is a classic example of extrinsic versus intrinsic motivation. Awards like Michelin stars are extrinsic motivators: they can push restaurateurs to invest more in their establishments or train their teams to higher standards. Intrinsic motivators, on the other hand—a love of food, curiosity about new techniques, belief in a mission—come from within. In reality, we’re rarely driven purely by one or the other; psychology research shows that both forces usually operate together.
But when extrinsic motivators become too dominant, they can distort incentives and lead to undesirable behavior. A 2014 study on a punctuality award program in a factory found that while the award briefly improved the attendance of absentee employees, it did not improve overall attendance rates. Worse still, the award program “crowded out” employees’ intrinsic motivation to clock in on time, ultimately leading to poorer punctuality in periods when the award program was not in effect.
Awards can misalign incentives at all levels of the business. A 2009 study examined what happens when CEOs become “superstars,” winning prestigious national awards and garnering widespread press coverage. The firms of CEOs who achieve superstar status were found to subsequently perform worse compared to their peers and to the overall market. At the same time, these CEOs spent more time on personal “status” activities, such as writing books, giving talks and sitting on boards, at the expense of their core responsibilities, all while demanding higher compensation.
How then should entrepreneurs think about awards? Industry accolades, like end-of-year rankings or “best workplace” lists, can signal quality in crowded markets. They can boost investor confidence, attract top talent to work and strengthen a brand. But as we saw in Part 1 of this series about Michelin’s history, many factors shape award-giving processes and not all of them have to do with merit. In industries whose awards are less universally recognized than a Michelin star, it’s worth considering even more carefully the cost of pursuing them against the benefits they bring.
When it comes to designing an awards program for employees at a workplace, a 2016 paper by economists Jana Gallus and Bruno Frey recommends considering three elements:
First, is the award monetary or purely symbolic? Prize money clearly establishes the award’s importance and is a clear motivator, but may encourage toxic behavior and worsen employee group dynamics.
Second, are the award criteria predetermined and communicated in advance? Clear benchmarks help employees know what to aim for, but counterintuitively, this may not always be ideal.
“It is often assumed that clearly announced criteria guarantee the fairness of the selection process,” Gallus and Frey write. “This argument, however, no longer holds where activities involve complex tasks, which are difficult to measure and require personal judgment [to ultimately evaluate].”
Third, how regularly are awards given? More frequent awards reduce negative peer comparisons, but may dilute the award’s perceived value.
Ultimately, founders and managers alike would do well to remember Goodhart’s law, named after the British economist who coined the adage: “When a measure becomes a target, it ceases to be a good measure.”
Congratulations once again to the restaurants and chefs recognized by the Michelin Guide.
Queena N. Lee-Chua is on the Board of Directors of Ateneo’s Family Business Center. Get her print book “All in the Family Business” at Lazada or Shopee, or e-book at Amazon, Google Play, Apple iBooks. Contact the author at blessbook.chua@gmail.com.
