Show Me the Incentive, and I'll Show You the Culture

Why what organizations reward determines the behaviors they get and the outcomes they achieve.

Charlie Munger, the late vice chairman of Berkshire Hathaway, was known for a simple but powerful observation:

Show me the incentive, and I’ll show you the outcome.

It’s a deceptively simple idea, but it’s something I’ve written about both here on this blog and in my LinkedIn newsletter, Farm to Executive Table. (You have signed up to get that, right?!)

The implications of the concept for leadership, culture, employee experience, and customer experience are enormous. If you want to understand why an organization consistently produces certain outcomes, don’t start by examining its mission statement or its core values or its latest employee engagement survey. Start by looking at what it rewards: what gets measured, recognized, promoted, or tolerated? And what happens when employees make decisions that put the customer first but conflict with an internal target?

The answers will tell you far more about your organization’s actual culture than any statement hanging on a conference room wall. And that brings me to a mantra I have used for years: Fix the culture, fix the outcomes.

These two ideas are deeply connected. If you want different outcomes, you have to examine the conditions that produce them. And incentives are among the most consequential of those conditions.

Incentives Tell Employees What Matters

Most businesses have a set of stated core values. They talk about collaboration, customer-centricity, innovation, accountability, and employee empowerment. Those are admirable aspirations, but aspirations don’t determine behavior. The environment in which people work does. Employees pay attention to what leaders say, of course, but they pay even closer attention to what leaders do, what they reward, and what happens to people who behave in ways that challenge the status quo.

Remember: culture = core values + behaviors for a reason.

Let’s take a look at a few examples.

You say customers come first. The problem is that your contact center employees are evaluated primarily on average handle time, calls handled per hour, and cost per interaction. Those are not customer-first metrics. Employees quickly learn that spending an extra few minutes resolving a customer’s problem, even when doing so prevents a repeat call, is a risk to their performance scores.

You say collaboration is a core value. Sadly, performance reviews, bonuses, and promotions are based almost exclusively on individual accomplishments. Employees learn to protect their territory, compete for visibility, and prioritize their own results over collective success.

You say innovation is essential. Unfortunately, leaders punish mistakes, question employees who challenge established practices, do whatever they can to mitigate risks, and reward people who deliver predictable results without rocking the boat. Employees learn that the safest path is to maintain the status quo.

You say employees are empowered to make decisions. The problem with that is every decision is subject to multiple approvals, managers override employees without explanation, and people who exercise judgment are criticized when their decisions don’t go exactly as planned. Employees learn that empowerment is a slogan, not a reality.

You see the pattern, right? Leaders say one thing but reinforce another. Employees are rational and adapt to the system in which they work. They learn which behaviors help them succeed, which put them at risk, and which organizational priorities actually matter when trade-offs have to be made. Eventually, those learned behaviors become the norm.

And that, my friends, is your culture. Not the culture described in the employee handbook or presented during new-hire orientation but the culture employees experience every day.

The Problem Isn’t Always the People. It’s the System.

When outcomes fall short, leaders often look for someone to blame. Employees aren’t customer-driven enough. Managers aren’t holding people accountable. Teams aren’t collaborating. Frontline employees aren’t taking ownership. Sometimes individual performance is, indeed, part of the problem, but before leaders conclude that employees are the problem, they need to examine the system in which those employees operate: What are people being asked to do? How are they being measured? What resources and authority do they have? What competing priorities are they expected to reconcile? What happens when doing the right thing for a customer conflicts with meeting an internal target?

You can’t reasonably expect employees to prioritize customer outcomes while penalizing them for the time, effort, or judgment required to achieve those outcomes.
You can’t expect managers to develop people when their own success is measured exclusively by short-term output.
And you can’t expect employees to speak up about problems when the people who raise uncomfortable questions are labeled difficult or disloyal.

When the system consistently rewards the wrong behaviors, asking people to behave differently won’t fix the problem.

While asking employees to behave differently might produce temporary compliance or generate a short-lived improvement, unless the underlying conditions change, people will eventually return to the behaviors the system rewards. This is why culture transformation can’t be reduced to communication campaigns, training programs, or reminders about core values.

It requires leaders to examine and change the mechanisms that shape behavior: decisions, incentives, processes, measures, management practices, and accountability. In other words, culture has to be designed and reinforced through the way the business actually operates.

Incentives Are Bigger Than Bonuses

When people hear the word incentives, they often think of compensation, i.e., bonuses, commissions, raises, and financial rewards. Those matter, but incentives extend far beyond money. An incentive can be anything that makes a particular behavior more or less attractive to an individual. Some incentives are formal and intentional, while others are informal, embedded in the culture, and often invisible to the leaders who created them. Some examples include recognition, career development or advancement, workplace flexibility, or time off.

Incentives Shaping Culture

Consider five places where incentives shape culture.

1. What you measure

Metrics direct attention. They tell people what deserves their time and effort. So, if you measure productivity without measuring quality, people optimize for speed at the expense of effectiveness. If you measure customer satisfaction but ignore the operational obstacles employees face when trying to serve customers, you hold people accountable for outcomes they lack the authority or resources to influence.

Metrics aren’t inherently good or bad, but ask yourself, “Do they encourage the right decisions?” A healthy measurement system balances efficiency with effectiveness, individual performance with collective results, and short-term achievement with long-term value creation.

What leaders must do: Take a look at your scorecards. Identify the behaviors each metric encourages, the behaviors it unintentionally discourages, and the trade-offs employees have to make to hit their targets. Add or adjust measures where necessary so that success reflects the outcomes you actually want.

2. What you reward and recognize

Formal rewards communicate priorities, but so does recognition. Who receives the biggest bonus? Who gets promoted? Whose accomplishments are celebrated at the company meeting? Who’s considered a high performer? If an employee achieves impressive financial results by creating unnecessary work for colleagues or delivering a poor customer experience, what happens? If a manager consistently hits targets but burns out the team, is that manager rewarded anyway?

Every time leaders celebrate results without considering how those results were achieved, they reinforce a message about what matters.

What leaders must do: Evaluate both the results people deliver and the behaviors they demonstrate while delivering them. Recognize employees who embody your core values, collaborate across boundaries, improve the customer experience, and strengthen the organization for the long term. Don’t promote people into leadership roles solely because they produce strong individual results.

3. What you tolerate

This might be the most powerful incentive of all. Employees notice when leaders overlook disrespectful behavior from a high performer or talk about accountability but excuse poor behavior from people who deliver good numbers They notice when a manager repeatedly undermines colleagues but continues to advance.

Tolerance is just reinforcement. When unacceptable behavior carries no meaningful consequences, employees learn that the stated standard isn’t really a standard; it’s optional. Over time, that creates a dangerous divide between the culture leaders claim to want and the culture employees learn to navigate.

What leaders must do: Define the behaviors that are non-negotiable, regardless of an individual’s title, tenure, or performance. Hold everyone accountable to the same standards. If a person delivers outstanding financial results while damaging trust, collaboration, or customer relationships, those costs have got to be part of the performance conversation.

4. How you make decisions

Decision-making is another powerful culture signal. Who has authority? Who gets consulted? What happens when priorities conflict? Are decisions made transparently, or do employees have to navigate informal power structures to get anything done?

Leaders might claim to value empowerment while requiring approval at every turn. They might claim to value trust while second-guessing every decision. And they might claim to value innovation while consistently prioritizing the comfort of established practices over experimentation. The incentive is clear: don’t take risks, don’t make decisions without permission, and don’t challenge the people who hold power.

What leaders must do: Clarify decision rights. Give employees the authority, information, resources, and boundaries they need to make sound decisions. Then support reasonable judgment, learn from mistakes, and distinguish between a thoughtful decision that produces an unfavorable outcome and reckless behavior that disregards established guardrails.

5. How leaders spend their time and attention

Leaders often underestimate the incentive created by their own attention. If executives spend every meeting reviewing financial performance but rarely discuss employee experience, customer friction, or the organizational conditions affecting results, people will quickly understand what deserves attention.

If leaders ask about revenue but never ask what it took to achieve it, revenue becomes the priority… even when the way it was generated creates downstream problems.

What leaders consistently ask about, investigate, and act on signals what matters.

What leaders must do: Make culture, employee experience, and customer experience part of regular business reviews. Ask not only whether targets were met but how they were met, what obstacles employees encountered, what customers experienced, and what the organization needs to change to produce better results next time.

The common thread across all five of these is this – and it’s not a new message from me:

Leaders shape culture through the systems and signals they create, whether they intend to or not.

You get the culture you design or the one you allow. Sadly, too often it’s the latter rather than the former.

The Hidden Cost of Misaligned Incentives

Misaligned incentives don’t simply create isolated performance problems; they can create a chain reaction that affects the entire organization. An employee is rewarded for speed rather than resolution. Customers call back because their problems weren’t fully addressed. Repeat contacts increase costs and frustrate customers. Employees face greater workloads and more difficult interactions. Morale suffers, turnover increases, and the organization spends more time and money replacing and training people.

The original metric may have improved, but the business outcome deteriorated. This is what happens when organizations optimize individual parts of the business without considering the broader system. One department hits its target while creating problems for another department. A manager meets quarterly goals while exhausting the team. A pricing strategy improves short-term revenue while eroding customer trust. A cost-cutting initiative reduces expenses while making the experience harder for employees and customers.

These aren’t necessarily failures of effort; they’re often failures of alignment. And they illustrate an important distinction: A metric can improve while the business gets worse. That’s why leaders have got to move beyond asking whether people are meeting their targets. They have to ask whether the targets themselves are producing the right behaviors and outcomes.

The objective isn’t to eliminate incentives or metrics but to ensure that the system rewards the creation of sustainable value rather than the optimization of isolated numbers.

The Golden Thread: Connecting Culture to Outcomes

This is where the connection to the Golden Thread becomes particularly important.

Culture shapes the environment in which employees work. That environment influences employee experience, including whether people have the clarity, tools, authority, support, and motivation to do their best work. Employee experience, in turn, influences how people serve customers, make decisions, solve problems, and deliver on the organization’s promises. Those customer experiences ultimately influence business outcomes.

As you know, the Golden Thread connects these elements:

Culture → Employee Experience → Customer Experience → Business Outcomes

Incentives run through this entire chain. When incentives reinforce the right culture values, they help employees make decisions that support the customer experience and contribute to sustainable business results. When incentives contradict those values, the Thread breaks.

Leaders might want a customer-centric culture, but the operating model might prioritize internal efficiency. They may want empowered employees, but their decision-making structures may prevent people from acting. They say they want collaboration, but their performance systems may encourage competition between teams.

The result is a disconnect between leadership intent, employee reality, and customer experience. Customers don’t experience leadership intent; they experience what the organization actually delivers. That’s why culture can’t sit apart from business strategy, operational execution, and performance management. It has to be woven into all three.

The Golden Thread isn’t simply about understanding the relationship between culture, employee experience, customer experience, and business outcomes. It’s about deliberately aligning them so that the organization is designed to produce the results it says it wants.

How to Fix the Incentives – and the Outcomes

Understanding the problem is only the beginning. Leaders have to be willing to examine the systems they’ve built and change the ones that undermine their intentions.

Here are six things leaders can do to get started.

1. Define the outcomes you actually want.

Be specific. Do you want higher customer retention? Better problem resolution? Stronger collaboration? Faster innovation? Greater employee ownership? Identify the outcomes that matter and the behaviors that will help produce them. Don’t start with a list of metrics. Start with the results the organization needs to achieve and work backward.

2. Audit the incentives already in place.

Take a look at your compensation structure, performance reviews, recognition programs, promotions, operational metrics, management expectations, and decision-making practices. For each one, ask: What behavior does this encourage? What behavior does it discourage? What unintended consequences might it create? Look for contradictions between your stated values and your operational reality. Those contradictions are often where the most important culture problems hide.

3. Involve employees in identifying the disconnects.

Leaders don’t always see the consequences of the systems they create. Employees experience those consequences every day. So, ask employees what gets in the way of doing the right thing for customers. Find out which targets conflict, where approval processes create unnecessary friction, and what people believe they must do to succeed. Look for patterns across teams and roles. Employee feedback is evidence that can help you identify systemic problems, not merely a collection of individual complaints.

4. Align measures and rewards with the desired behaviors.

If collaboration matters, recognize and reward contributions to shared outcomes. If customer-centricity matters, measure whether customer needs are actually being resolved, not just how quickly interactions are completed. If empowerment matters, evaluate whether employees can exercise sound judgment within clear boundaries. Use a balanced set of measures that accounts for results, behaviors, quality, and long-term consequences. Don’t simply add more metrics; instead, make sure the measures you do have work together rather than compete with one another.

5. Hold leaders accountable for the culture they create.

Culture is not HR’s responsibility alone. Leaders at every level shape it through their decisions, actions, and expectations. That means managers must be evaluated not only on what their teams achieve but also on how they lead, how they develop people, how they collaborate, and whether they create the conditions for employees to succeed. Middle managers are especially important because they translate organizational priorities into day-to-day reality. If executives announce one set of expectations but managers reinforce another, employees will follow the incentives they experience most directly.

6. Monitor the effects and adjust.

Changing an incentive doesn’t guarantee the intended result. People adapt, workarounds emerge, and one improvement can create unintended consequences elsewhere. You have to track whether the changes produce the behaviors you wanted and whether those behaviors lead to better employee, customer, and business outcomes. Listen to employees, examine customer feedback, review operational data, and look for both intended and unintended effects. Then adjust.

Culture isn’t fixed by announcing a new set of values or revising a bonus formula. It’s shaped continuously through the decisions, systems, and behaviors an organization reinforces.

Fix the Culture, Fix the Outcomes

Let’s return to Charlie Munger’s observation. (As you can tell, we are definitely on the same page!) Show me the incentive, and I’ll show you the outcome.

The deeper lesson for leaders is that outcomes rarely happen in isolation. They emerge from the conditions in which people work, the decisions they make, and the behaviors leaders reward and reinforce.

If you want a different culture, stop treating culture as something you communicate and start treating it as something you build into the way the business runs.
If you want employees to behave differently, examine what the organization is asking them to do and what it rewards them for doing.
If you want customers to have better experiences, examine whether employees have the support, authority, and incentives to deliver them.
If you want sustainable business results, examine whether your operating model encourages people to create long-term value or simply hit short-term targets.

In Closing

Your values matter. Your leadership matters. Your people matter. But intentions alone won’t overcome a system designed to produce a different result. The real test of your culture isn’t what you say you value but what your organization consistently rewards, reinforces, and tolerates. Look at those things honestly, change what needs to change, and align the system with the culture you want to build because if you want different outcomes you can’t keep reinforcing the behaviors that produce the same old ones.

Fix the culture, fix the outcomes.

Spend each day trying to be a little wiser than you were when you woke up. ~ Charlie Munger

ABOUT ANNETTE

Annette Franz is an internationally recognized employee and customer experience thought leader, coach, speaker, and author who has helped organizations around the world build cultures that empower employees and create consistently better customer experiences.

She has authored multiple books that provide practical frameworks for leaders, including:

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Image courtesy of Sasun Bughdaryan on Unsplash.