Career Focus

This course gives students frameworks and tools for (i) understanding what motivates people and (ii) designing incentive systems, broadly defined, that motivate employees and others associated with an organization to engage in behaviors that further the organization’s value-creating purpose. The course is useful for students in all career tracks and with any industry focus.

Educational Objectives

By the end of the course, students will:

• Understand the wide range of motivational factors that drive human behavior in an organizational context, including pay, perquisites, promotions, opportunities for skill development, social approval, fairness, stress, emotional states, autonomy, self-identity, and values
• Have the skills to build and manage effective incentive systems, whether based on monetary compensation or based on other forms of rewards, that tap into people’s underlying motivations and promote value-creating behavior
• Understand how an organization’s incentive systems shape the mix of individuals who are attracted to, promoted within, and retained by the organization
• Know how to design organizational processes, such as hiring procedures and training programs, in ways that complement the organization’s formal incentive systems
• Have the analytical tools to connect an organization’s motivational strategy to the precise mechanisms by which the organization creates value

Course Content and Organization

The course takes an interdisciplinary perspective overall and draws heavily from behavioral economics, the field that combines insights from economics and psychology to understand human decision making.

In order to establish a baseline from which the rest of the course builds, Module 1 explores the classical economic approach to analyzing organizational incentive systems. Using an extremely simple view of motivation, the economic approach provides a large number of useful insights. The key observation is that it is impossible to perfectly measure and therefore impossible to directly reward the value that is created by an individual on behalf of an organization. When contending with this challenge, the designer of an incentive system faces an important tradeoff between inducing high levels of motivation and inducing the right types of behavior. All incentive systems represent different strategies for managing this tradeoff.

Module 2 challenges and expands the classical economic approach by considering a much richer perspective on what motivates people. Relying primarily on a psychological lens, this module examines how the design of incentive systems should account for the relevance of non-monetary rewards, the social nature of the workplace, the emotions experienced in a work environment, and the role of meaning and purpose in shaping motivation. These factors can cause well-intentioned incentive systems to backfire, but these factors simultaneously represent an opportunity for a skilled manager to harness a powerful set of motivators for the purposes of value creation.

Module 3 synthesizes the ideas from earlier in the course and embeds them in the broader context of an organization’s overall strategy and operations. The module will analyze the interaction of formal incentive systems with other organizational processes that may undermine or reinforce value creating behavior. The module will also critically examine common assumptions regarding the sources of value creation. Finally, students will have the opportunity to reflect on how their own personal values should interface with their objectives and approach when designing incentive systems to shape others’ behavior.

Group Project and Evaluation

Students will work in groups of four or five to prepare a presentation on a frontier topic in the broad area of motivation in organizations. Examples: students might present a “mini-case” on a company that uses innovative incentive practices; students might report the results of a laboratory-style experiment exploring a novel source of motivation; or students might share a synthesis of lessons learned from a handful of interviews conducted with interesting thinkers in the field. The instructors will suggest a number of pre-approved topics from which students can choose, and students can also propose their own topics (subject to instructor approval and enough interest from other students to form a group). This project is not meant to be a full-fledged final course assignment, but instead a lighter-touch opportunity to explore an interesting idea in line with the course framework.

The components of the overall course grade are as follows: 50% based on class participation, 10% based on the group project, and 40% based on an exam at the end of the semester.

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