Incentive programs are the tip of the sword in organizational suicide. They are often designed by people who believe that there is a single cause leading to a positive effect in achievement. The reality is that life isn’t that simple. Here are three examples of incentive program fails:

EXAMPLE 1 – Retaining Major Customers
ISSUE:  A business owner loses a major customer and believes that it was because his employees weren’t responsive enough to the major customer’s needs.

INCENTIVE:  The owner creates and incentive program that rewards employees for being more attentive to major customers. (Potential measures:  Major customer satisfaction surveys, increase in revenue from major customers, response time data.)

EFFECT: Some employees learn how to gain the favor of the major customer through unethical tactics:  i.e. kickbacks, access to inside information about the major customer’s competition, sacrificing minor customers in order to be more attentive to major customers, giving more product or service to the major customers and charging it to minor customers, etc.

RESULT:  The owner finds out that some unethical employees look like superstars to the major customers, while ethical employees seem to be failures. Minor customers, a primary source of new revenue, leave for competitors leaving the company with a few major customers that demand special treatment.

EXAMPLE 2 – Improving Student Performance
ISSUE:  Recognizing and reinforcing good student behavior and educational achievement.

INCENTIVE:  Teachers are given special reward tokens to give to students who display good behavior, or who perform exceptionally on class or homework assignments. Students with the most tokens are given a special reward at the end of the school year.

EFFECT:  Some teachers give out tokens liberally and gain favor with the students. Some teachers attempt to ethically administer the program, but find that they are not consistent in giving out tokens to the students for similar positive events. Some teachers do not buy into the incentive program and rarely give out tokens.

RESULT:  High performing students discover that their behavior and achievements is subject to different evaluators who create an reward system that is not objective. Students who are recognized feel superior to other students, and other high performing students become angry, frustrated, and discouraged.

EXAMPLE 3 – Improving Productivity
ISSUE:  Motivate management to improve to eliminate wasted time and resources.

INCENTIVE:  Financial bonuses for top managers who have higher output per employee and/or expenses, OR have lower cost per dollar of revenue.

EFFECT:  Managers discover that by making salaried employees work longer hours and not replacing old equipment as needed, they can look more productive. Employees may not like working with broken or outdated equipment, or be required to work longer hours, but that is not what is measured, so it is irrelevant to the manager.

RESULT:  Other indicators (high turnover, loss of customers, etc.) might indicate a failure of the manager in performing his or her duty; however, because the incentive is to improve productivity, those factors are ignored. The manager looks like a superstar and yet the division or department has severe morale issues and is a business failure.

Why Incentive Programs Fail
Despite the popular idea that incentive programs are a good motivational tool, there are four reasons why they are not.

Organizational success is not a science, but an art

Incentive plans are based on the old idea that the ends justify the means. True organizational success is all about the ‘means’ and the success comes only after multiple factors combine. Organizational success often can’t be repeated because it was contingent on the talents of key team members who brought key talents or skills into the formula of success.

Cause and effect are rarely in a one-to-one relationship

Whatever is defined as the positive outcome, people will find multiple ways to achieve the desired goal, regardless of ethics.

People are not ethical by nature

Incentive programs encourage unethical behavior. The goal is assumed to be the highest priority and that is tacit approval to some that anything goes as long as the goal is met or exceeded.

Some organizations intend the incentive program to encourage unethical behavior

Executives cannot tell their employees to be unethical, but they can create the environment that fosters unethical behavior in pursuit of the indicators of success. This protects the company and puts all the risk on the employees.

Incentive = Manipulation

People who design incentive programs explain that the intent is to reward good behavior, and they fail to complete the sentence, “through manipulation.” Manipulation requires a lack of respect. Most people want to do the right thing and don’t need to be tricked into doing it. It is possible that unethical behavior is stimulated by incentive programs because the person feels disrespected by the use of manipulation and responds by obtaining the reward while sabotaging the program.

The Need For An Incentive Program?
Organizations that need an incentive program indicate a failure in leadership. Any business or school should know who its best performers without an artificial measurement program in place to identify them. In addition, any organization should have an ongoing effort to recognize and reward the best performers. Leadership that is effective in celebrating success will be setting the example for others without manipulation through an artificial program that disrespects people and will likely be vulnerable to unfair evaluation and unethical behavior.