Workplace Issues

Do Performance Incentives Backfire?

New research suggests that they can, but whether they do or not, they're tricky tools.
David McCannFebruary 28, 2014

In a previous career incarnation when I supervised people, I exhibited several behaviors that weren’t covered in Management 101. I treated each person differently, tried to make friends with everyone, tolerated insubordination, gave perversely glowing reviews to mediocre performers and delegated only when supremely necessary.

(Stop looking at me like that. It worked. At least, the various people I reported to let me keep doing it for 20 years.)

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Another shortcoming was my system of rewarding people for excellent performance. I didn’t have one. Once while interviewing for a job — the interviewer, surrealistically for me, was Jerry Tarde, the iconic editor-in-chief of Golf Digest and a personal hero of mine — I was asked, “What do you do to reward people?” I sure didn’t want to disappoint Jerry, but I didn’t know what he was talking about. I was nice to them. That wasn’t enough?

I didn’t get the job.

Opinion_Bug7Well, a wisp of redemption wafted my way this morning … maybe. Its source was an article about a study by some Dutch scientists, purporting that the effect of performance incentives can actually be opposite from the intended one. The research found that “the potential for a bonus can send the brain’s reward centers into overdrive and interfere with [the] ability to process information,” the article states.

Read the article and judge for yourself. The study’s conclusion is based on psychological tests that appear to this lay observer as kind of goofy, insofar as providing proof that incentives backfire. The distractive effect described in the study may apply when those being tested are trying to earn a reward by successfully completing a short mental task as a clock ticks. But that’s not what incentives look like in the workplace.

I can see how some kinds of incentives, like cash for joining a gym or completing a wellness profile, may be ineffective and pointless. But counterproductive? You might waste the minimal cost of such a program, but your work force is not going to be less healthy because of the offer.

Stock options are incentives. The danger inherent in them is not that executives will fail to earn them, by trying so hard that their brains get fuzzy for an entire year, or three years, or whatever the time period during which the reward can be earned. The danger, as we’ve seen all too often, is that they may take excessive risks that are injurious to shareholders in order to grab the brass ring.

Performance incentives are complicated. That’s so both for the company in structuring them, so as to provide the best chance of achieving certain ends; and for those who are incentivized, in the course of trying to attain them. It’s best to look at this with care and take nothing for granted.

Oh, one last thing. A postscript to future potential employers: All that stuff at the top of this article? Pay no mind. I made it all up. Just a smidgen of artistic license.