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Question: What do Enron, Merrill Lynch, Countrywide, AIG, General Motors and Chrysler have in common? Answer: Their CEOs each received huge compensation packages as they led their respective companies to their demise. How do we explain the disastrous decisions that caused these iconic companies to collapse while being led by experienced, well-educated people who had been entrusted by their shareholders and directors with the well-being of these companies?

The best place to start is with the reward system. Because behaviors that are rewarded tend to be repeated, they ultimately are embedded into the organizational culture.

An Academy of Management classic, “On the Folly of Rewarding A, While Hoping for B” by Steven Kerr, was published more than 20 years ago, and it is more relevant than ever today:

We hope for:

• Teamwork and collaboration

• Innovative thinking and risk taking

• Development of people skills

• Employee empowerment

But we reward:

• The best team members

• Proven methods and not making mistakes

• Technical achievements

• Tight control over operations and resources

A more recent article in the journal Leader to Leader, “Be Careful What You Reward – You Might Get It” by Bob Nelson and Dean Spitzer, reinforced how leaders are still recognizing and rewarding the wrong things.

Leaders want high performance, but they tend to reward seniority. Leaders want high profits, but they reward any sales revenue, even when it might reduce long-term profits. Leaders want employees to be problem solvers, but encourage problem hiding. Leaders want outstanding customer service, but they cut customer service budgets to reduce costs.

The pressure to deliver short-term profits and financial rewards clouded these CEOs’ vision to the point that they could not see or ignored the peril to the very survival of their institutions.

Kerr maintains that reward systems continue to be dysfunctional for three main reasons:

Our inability to break out of our old ways of thinking about reward and recognition practices.

Our lack of a holistic perspective of performance factors and outcomes.

Our focus on short-term results by management and shareholders.

As the saying goes, “You get what you reward.” So the crucial management question should be, “What behaviors do we want?”

By asking this question, leaders can make sure that beneficial behaviors are rewarded and eliminate or penalize behaviors that can threaten an organization’s survival.

Now more than ever, we need innovation and long-term growth. Look at how people are behaving. Then you will know what is being recognized and rewarded.

Jann Freed holds the Mark and Kay De Cook Endowed Chair in Leadership and Character Development at Central College in Pella.