The Culture Formula

Why do some environments where people gather become bastions of trust and cooperation while others devolve into shark tanks? So many things can seem similar from the outside, and yet crucial differences will sway the balance in enormous ways. No matter what kind of purpose for which you’ve gathered your fellow humans together, this insight matters.

People will often describe good environments (workplaces, clubs, fraternities/sororities, etc.) by highlighting how supportive people are of one another, how safe they feel even in their vulnerabilities, or how collaborative the creative environment is. These are important things, but I actually think they’re second-order effects. Their presence (or absence!) is a symptom of something more important, more fundamental.

Here is what I think that is: An environment of individual success, yet not zero-sum success, where the rewards are drawn from a pool that grows larger as the environment grows stronger as a whole and yet are still distributed based on personal contribution in a clear and transparent way.

Okay, that was kind of a complicated phrase, so let me break it down bit by bit. First, we have to remember that incentives matter. In the most basic sense, people will be awesome when they’re incentivized to be awesome and they’ll be lousy when they’re incentivized to be lousy. So if you want a great working environment, people have to be rewarded when that happens. Also, crucially, they have to be able to recognize the reward structure for what it is; if you create an incentive structure that’s too complicated, people won’t be motivated by it.

So let’s talk about incentives a little. Imagine a company that gives out bonuses once per year, and those bonuses go to every employee in an exactly equal amount no matter what anyone does individually. That’s nice and all (who doesn’t love a year-end bonus?), but it isn’t really a motivational tool, because nobody individually can change the amount they’ll get. So it’s a nice gesture, but a weak culture-building tool.

Okay, let’s go the opposite route. Let’s say the company has a $50K “bonus pool” each year, and it’s portioned out based on a ranking of individual performances. Individuals are now seriously motivated to improve their own performance, but – critically – this is zero-sum. One employee’s gain is another employee’s loss. They’re fighting, essentially. People are improving at the expense of their own team. Sure, people will be motivated to improve their own performance, but how motivated will you be to help your colleague? (Incidentally, this is the culture in about 99% of sales offices, and explains why there’s so little mentorship in many of those environments.)

So, a big flat bonus isn’t that helpful because there’s no connection to improvement. And a competitive bonus pool is often actively harmful because everyone is stabbing each other to get it, and the individual performance gains don’t outweigh the long-term harm to your whole team and operation.

Okay, so what’s the best way? Imagine a policy that says something like: “Every employee gets a gold star for each good thing they do, and at the end of the year each gold star is worth half a percent of our total profit for the year as a year-end bonus.”

What’s good about this? Everyone individually can work harder for more rewards. No one’s reward is coming at the expense of another and helping someone else get more reward doesn’t lessen yours any. And the total reward scales up as the organization does better. So people are incentivized to help themselves, their peers, and the whole team. No shark tank.

But that isn’t perfect! You see, I slipped in a landmine. There’s something else that can kill a culture quickly: arbitrariness.

“A gold star for each good thing” is just about as arbitrary as you can get. Remember when I said people needed to be able to picture a clear line between their behavior and the incentive? You absolutely ruin that when the things that give rewards are vague or whimsical, even if the reward itself is structured perfectly.

People like clear rules to play by, and they don’t like feeling at the mercy of someone else. People like fairness, transparency, and honor. These are things within your control.

So this is the formula for good culture – the kind that fosters trust, collaboration, happiness. Make sure the rewards are based on individual contributions but are not drawn from another person’s pocket. (And by the way, I used the simple example of a year-end bonus above, but “rewards” can mean a lot of things – just make sure you’re sticking to this rule!) Be incredibly transparent about what those rewards are, how they’re attained, and how they grow when the organization succeeds. Continue to support the growth of this culture by making it more important than any individual – make everyone accountable to trust, staying true to promises, and staying away from arbitrary whims.

If you make these things a priority and make them visible, then every individual within the group will be strongly incentivized to maintain them. They’re good things that don’t require much in the way of top-down imposition. People want to collaborate, trust & be trusted, help other people succeed. The reason they sometimes don’t is often that they’ve been incentivized not to by someone who didn’t understand the harm they were doing.

Minimize your harm and maximize your beneficial incentives, and then good people will take care of the rest.

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