The FBI has opened a criminal investigation of the Veterans Affairs Department, CNN and other media have reported. Among other allegations, an internal department audit found that employees manipulated records to make it appear that veterans’ wait times for doctor and hospital appointments were shorter than they actually were.
Supervisors earned bonuses partly by reporting low wait times, according to the CNN report.
This is a classic example of incentive gaming, said a business strategy professor at Washington University in St. Louis’ Olin Business School.
“This is nothing new,” said Lamar Pierce, PhD, an associate professor of strategy, who has published widely on compensation and incentive conflict.
“Organizations frequently use financial incentives to motivate productive behavior in employees,” Pierce said. “Since some people prefer to avoid effort on critical tasks, supervisors must either monitor people intensely or pay them based on their observable performance.”
Incentive gaming is when people manipulate pay-for-performance schemes in ways that increase their compensation without benefitting the party that pays.
“It’s an example of how innovative people can be when there are financial rewards involved,” Pierce said.
What top officials at the VA may have overlooked, however, was a test of their system before implementing it.
“Designers of incentive-based compensation systems must think carefully about unintended consequences, putting themselves in the shoes of their employees and asking, ‘If I were given these incentives, what might I do to game them?’ ”
“Managers and policymakers need to understand that humans are clever and often opportunistic,” Pierce said. “If you give them an incentive system, many of them will figure out how to manipulate it to maximize pay and minimize effort.”
Pierce noted that the allegations involving the VA, as in frequent cases of standardized test gaming by teachers, are particularly striking for two reasons.
First, it shows the difficulty of inserting financial incentives into a setting where they are not traditionally used — the federal government.
“Many people erroneously see financial incentives as a panacea for perceived examples of government inefficiency such as education, health care or procurement,” he said.
Second, it shows that financial incentives can overwhelm even values that often are represented as routine.
“If even small financial incentives can overwhelm strong societal values such as educating children and caring for those who served our country, then such problems can occur anywhere,” Pierce said.
For a video on incentive gaming, featuring Pierce’s voice and the work of colleagues at University of Texas at Austin, visit here.
Editor’s Note: Pierce is available for interview. Washington University provides free ISDN and VYVX lines for taped or live broadcast interviews. Please contact Neil Schoenherr for more information at nschoenherr@wustl.edu or 314-935-5235.