By Dr. Eric Fruits,
Oregon Economist
On Demand Newsletter

Employee of the Month. Sounds like a great idea. For the price of a cheap plaque and a good parking spot, bosses can motivate employees to deliver superior service. So the thinking goes.

Academics call it “status competition.” And sometimes it backfires.

Wells Fargo has been accused of opening millions of fake bank accounts. Employee compensation was tied to opening new accounts and workers could lose their jobs if they didn’t meet targets. They also had status competitions.

According to the Miami Herald, the east coast region for Wells Fargo was run by Laura Schulte for about five years. Staff recall her sales promotion called “Schulte’s All Stars.” A 2010 copy of the all star list obtained by Bloomberg ranked managers by a mix of metrics, all gauging volume in different ways. Some workers were on track to be in the “Schulte Hall of Fame.” Sure, targets were hit, but laws likely were broken.

What this have to do with the Wehrmacht?

Research published by the National Bureau of Economic Research highlights the tradeoff between the benefits of higher performance against the costs of risky behavior using an … um … “interesting” data set.

In World War II, the German air force had a version of employee of the month. It was a daily bulletin called the Wehrmachtsbericht, produced by the propaganda department and broadcast daily over the state controlled media.

Being mentioned by name in the bulletin was one of the highest forms of recognition used by the German armed forces. Only 1,200 of the 18 million men in the armed forces were mentioned by name in the bulletin.

German pilots would get mentioned for an extraordinary number of air victories. Here’s Hans-Joachim Marseille’s mention in the bulletin on June 18, 1942 (his second mention):

First Lieutenant Marseille shot down ten enemy planes in a 24 hour period in North Africa, raising his total score of aerial victories to 101.

The bulletin served two purposes. The first, as propaganda to raise morale among the German people. The second, was to inspire German soldiers to achieve top performance.

But did it work?

The researchers divided pilots into two groups: top-ranked pilots and everyone else. Top ranked pilots were in the top 20 percent of victories (number of enemy planes shot down). Everyone else was in the other 80 percent.

A statistical analysis of pilots victories found that performance overall improved in the periods after a pilot gets a mention in the bulletin. The highest ranked pilots saw a 20 percent increase in their scores while the lower ranked pilots saw a modest increase.

What’s the cost?

It’s safe to say that dogfights are a dangerous undertaking. To shoot down an enemy plane, the pilot has to put himself in harm’s way. A pilot seeking to increase his score is increasing the chances that he’s going to get shot down himself.

Top-ranked pilots saw no significant change in their “exit rate.” The other 80 percent of pilots saw their exit rate increase by 20 percent—and, in some cases, more than double.

Overall, the gain in “victories” from mentioning pilots in the bulletin was outweighed by the loss in pilots from taking additional risks.

There’s a management lesson: Incentives can spur superior service, but can also encourage risky action. Think through the implications of your incentives.