In sociology and psychology the degree to which one party trusts another is a measure of belief in the honesty, benevolence and competence of the other party. In business and economics, trust translates to measurable financial outcomes. According to Watson Wyatt, the three year total return to shareholders is almost three times higher in companies with high levels of internal trust, versus the shareholder return for organizations with low levels of trust from their own employees. Trust, ladies and gentlemen, is a key competency that you can’t teach to anyone in the organization – the only way to gain it, is to build it over time.

Turns out, focusing on trust and transparency in association with the organizational reward management practices, can have one of the most profound effects on the overall measure of trust that employees award to a particular business. One particular experiment, described by Gary Hamel and C.K. Prahalad, demonstrates what in my opinion is one of the most important lessons that one could learn about transparency in compensation management.

Four monkeys were put into a room. In the center of the room was a tall pole with a bunch of bananas suspended from the top. One particularly hungry monkey eagerly scampered up the pole, intent on retrieving a banana. Just as he reached out to grasp the banana, he was hit with a torrent of cold water from an overhead shower (connotation to an employee trying hard to accomplish a goal and receiving no reward at the end). With a squeal, the monkey abandoned its quest and retreated down the pole. Each monkey attempted, in turn, to secure the banana. Each received an equally chilly shower, and each scampered down without the prize. After repeated drenchings, the monkeys finally gave up on the bananas. With the primates thus conditioned, one of the original four was removed from the experiment and a new monkey added. No sooner had this new, innocent monkey started up the pole than his companions reached up and yanked the surprised creature back down the pole (connotation to organizational memory – don’t bother trying because there is no reward involved). The monkey got the message – don’t climb that pole (don’t bother trying to achieve your goal). After a few such aborted attempts, but without ever having received a cold shower, the new monkey stopped trying to get the bananas. One by one, each of the original monkeys was replaced. Each new monkey learned the same lesson: don’t climb the pole. None of the new monkeys ever made it to the top of the pole; none even got so far as a cold shower. Not one understood precisely why pole climbing was discouraged, but they all respected the well-established precedent. Even after the shower was removed, no monkey ventured up the pole.

One key takeaway – once you instill distrust associated with organizational rewards, it would be extremely difficult to change the culture and enable high performance through pay-for-performance initiatives, even after old reward mismanagement practices are gone. Organizational memory always wins over the “unlearning curve”. Instill distrust once, and your organization is likely to live with it forever. Your thoughts?

Tags: compensation management, performance management, talent management