Why Incentive Plans Cannot Work

. For each person who wins, there are many others who carry with them the feeling of having lost. And the more these awards are publicized through the use of memos, newsletters, and awards banquets, the more detrimental their impact can be.

As Jone L. Pearce, associate professor at the Graduate School of Management, University of California at Irvine, wrote in “Why Merit Pay Doesn’t Work: Implications from Organization Theory,” pay for performance actually “impedes the ability of managers to manage.”

People who do exceptional work may be glad to be paid and even more glad to be well paid, but they do not work to collect a paycheck. They work because they love what they do.

Outside of psychology departments, few people distinguish between intrinsic and extrinsic motivation.

Incentive programs, and the performance appraisal systems that accompany them, reduce the possibilities for cooperation. Peter R. Scholtes, senior management consultant at Joiner Associates Inc., put it starkly, “Everyone is pressuring the system for individual gain. No one is improving the system for collective gain. The system will inevitably cra... See more

Incentives, a version of what psychologists call extrinsic motivators, do not alter the attitudes that underlie our behaviors. They do not create an enduring commitment to any value or action. Rather, incentives merely—and temporarily—change what we do.

Behaviorist theory, derived from work with laboratory animals, is indirectly responsible for such programs as piece-work pay for factory workers, stock options for top executives, special privileges accorded to Employees of the Month, and commissions for salespeople

As Thane S. Pittman, professor and chair of the psychology department at Gettysburg College, and his colleagues point out, when we are motivated by incentives, “features such as predictability and simplicity are desirable, since the primary focus associated with this orientation is to get through the task expediently in order to reach the desired g... See more

author Carla O’Dell reports in People, Performance, and Pay that a survey of 1,600 organizations by the American Productivity Center discovered little in the way of active employee involvement in organizations that used small-group incentive plans.