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A deeper dive into incentives: A conversation with Seth Goldstrom

Managing incentives in the context of a transformation requires a shift in thinking.
Successful companies find the right mix of financial and nonfinancial incentives. In this video, McKinsey senior partner Seth Goldstrom discusses ways to create a mix that turns into an impact essential.

Interview transcript

One of the ten crucial impact essentials for transformations that we’ve identified is incentives. How do you manage incentives in a transformation? Many times, incentives are tied to a business-as-usual way of measuring results. Did we meet our plan or did we not meet our plan?

Particularly in the United States, I believe there's been a shift toward shared incentives, as opposed to individual incentives.

When we’ve looked at the financial and nonfinancial incentives that successful companies use, we’ve found that they create individual and team incentives. What have you accomplished as an individual? What has your team accomplished? And how’s the overall business doing?

For financial incentives, what works best varies with the context. But in every instance, you need to know how to track results and tie them into the initiative goals. There’s a real science around that. Some financial incentives may not motivate people or may motivate the wrong behaviors. So how do you make financial incentives meaningful?

There’s a whole set of people who aren’t as motivated by money. To them, other things really matter, particularly in their day-to-day work environment.

One of the best examples I've seen was that of a plant manager who wanted to present an employee with an award. To make this as meaningful as possible, he brought in the employee’s entire family for the award presentation. When someone’s spouse and children are present, the award becomes more special. You can imagine how that employee felt as he walked out of work that day.

Another example comes from a business in one of the coldest parts of the country in the Midwest. The company held a contest in which the winning team got prime parking spaces near the front gate. It may sound silly, but this contest generated real excitement and bragging rights for the winners.

Other nonfinancial incentives could involve naming a road or an intersection on the company property after an employee who did something special, instead of naming it after a founder or a company officer.

Creating these incentives requires a mind-set shift. By recognizing and incentivizing the essential work that is really happening on the front line, companies will move closer to their transformation goals.

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