Why Incentive Plans Cannot Work

“What rewards and punishments do is induce compliance, and they do very well. If your objective is to get people to obey an order, to show up on time and do what they’re told, then bribing or threatening them may be sensible strategies. But if your objective is to get long-term quality in the workplace, to help students become careful thinkers and ... See more

The problem with principal-agent, or incentives, theory is that there are powerful anomalies that it cannot explain. For example, some of the hardest-working people on the planet are employed in nonprofits and charitable organizations. Some work in the most difficult conditions imaginable—disaster recovery zones, countries gripped by famine and flo

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One of my favorite examples comes from the heady days of America Online (AOL). The company would routinely send out CDs in an attempt to get people to sign up for its product. One group within the company, responsible for acquisitions, was given financial incentives for hitting subscription goals. And so all tactics were designed to do just that: s

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Easily measured, easily understood goals need to be carefully designed and agreed upon. Performance needs to be assessed fairly to avoid violent end-of-year arguments. Difficult messages need to be delivered with actionable suggestions, so an employee sees a clear path to greater rewards in the future. But the most difficult job in redesigning ince

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There is a classic psychology experiment that seems to confirm Brewer's point. Children who enjoy drawing were given marker pens and allowed to go at it. Some were rewarded for drawing (they were given a certificate with a gold seal and a ribbon, and told ahead of time about this arrangement, whereas for others the issue of rewards was never raised... See more