The Downside of Incentives


My introduction to the downside of incentives came at the age of 14. Our Australian Rules football team was on its end-of-year trip from our country town of Broken Hill playing a team in the big city, Adelaide. We were being beaten badly. Approaching half time I caught the ball (“took a mark”) near goals. In Australian Rules football a mark earns you a free kick - in this case a set shot at goal. I stepped back to go through my pre-shot routine. From 30 metres (yards) on a slight angle I was expected to score a goal, but it was no certain thing. Given the state of the scoreboard we were unlikely to win, but it would restore some pride and lift our spirits. I was about to start my approach when a “runner” ran up with a message from the coach: if I scored the goal he would give me a dollar.

Even as a kid I was gobsmacked that the coach thought I needed an incentive to make every attempt within my ability to kick straight and score the goal. I still remember my sense of bewilderment. I also remember the conflict he imposed on me: if I do score the coach and my mates might think I scored so I could earn the dollar (I already planned to tell him to stick his dollar up his jumper). Suddenly I had less enjoyment for the task. My joy in taking the mark was eroded and I was now less energised for attempting to kick the goal. I started my approach, distracted now, with more pressure on my shoulders. I missed the goal!

Incentives Demotivate 

Incentives are based on a view of human motivation. They assume that people are more inclined to do something with a promise of a benefit. This view comes from the behaviourism school that states as though it’s a law of human nature that when a reward follows a behaviour, that behaviour is more likely to be repeated.    

That doesn’t appear to be the case. Like many things in human nature it’s a bit more complex than that. From more recent studies than the early behaviourism work, it turns out that my football experience is what you would expect from normal kids who are on their way to being adults in the workplace. These studies come from a book by Alfie Kohn who challenges conventional thinking about incentives.

One study looked at sixth-grade girls who were asked to tutor younger girls to play a new game. There were two groups of the sixth graders. One group was promised free movie tickets for successfully teaching the younger girls. The other group was not promised anything. What was the impact of the reward? Those who were promised the reward got frustrated more easily, took longer to communicate ideas and the pupils didn’t understand the game as well compared to the group who weren’t promised anything.

In another study 72 nine-year-old boys one at a time came into a laboratory. They were set a challenge to tell whether a series of paired faces were identical or different. Sure enough there were two groups. One group were paid when they succeeded and the other group were simply told each time whether or not they succeeded. Who made more mistakes? Yes, those trying to earn the reward. And it didn’t matter how much they were paid or whether they were highly motivated achievers.

In a third study, children were given a fruit-flavoured yogurt drink they had not had before. In this case the children were divided into three groups. One group was just handed a full glass. The second group were praised for drinking the new drink and the third group were given a free movie ticket for drinking it. A week later the researchers returned.  Who drank more? Those who received nothing liked the drink as much, if not more the week later. Those who received movie tickets or praise now found the drink much less appealing. 

Why Incentives Fail 

Alfie Kohn proposes a number of reasons why incentives don’t actually work. 

1. They are controlling. Incentives are similar to punishment, where a dominant person seeks to control the other person. We use them to elicit certain behaviours that the controller thinks would not otherwise be present.  
2. They reduce the intrinsic motivation gor the task. We can diminish people’s interest in their work – whether it is a kid on a football field or an accountant, health worker, teacher or tradesperson. Optimal performance comes from intrinsic motivation not imposed motivation. 
3. They rupture relationships. Incentives can create competition amongst colleagues where others are an obstacle to earning the reward.   
4. They add pressure to the person. They change the way we engage in a task and we become narrower in our engagement. People who see themselves being unable to achieve the reward disengage. 

(Source: Alfie Kohn, Punished by Rewards, Houghton Mifflin, USA, 1999.)

Implications for Organisations 

So, what should we do about incentive plans in organisations?

First, if your organisation does not have incentive plans then be reassured that you are not missing out on a productive motivational tool and don’t rush into adopting one. I sometimes have conversations with leaders in government and not-for-profit organisations who regret that they don’t have the incentive options of the private sector. I say to them that it’s a good thing that they don’t; that incentives can be a distraction and that their staff have the intrinsic motivation of the purpose of their organisation. Certainly in those sectors there can still be a role for recognition plans such as “dinners out”, but see below for a list of design tips. 

Second, for organisations with incentive plans (such as sales incentives and bonus plans), it’s a big jump to discard them. So my advice to leaders in these organisations is to set the plans and then “forget” them. Don’t keep the reward in people’s faces. Allow the task itself and personal satisfaction of achievement to be the primary reward. It’s worth remembering that bonus systems became more popular in the early 1990s. They were introduced as a means of reducing fixed labour costs, not as motivational tools. If the organisation’s performance reduces then labour costs are wound back rather than being burdened with totally fixed salary costs. The organisation then wears the reduced motivational impact of an expected bonus not being paid.

Third, insight into human motivation helps with the design of recognition plans, such as “dinners out”. Here’s some design suggestions:

1. Offer the reward after the fact – as a surprise – not as a controlling offer “that if you do this you will get that”. 
2. Make the reward as similar as possible to the task to connect the extrinsic reward to the intrinsic motivation.
3. Give people choice as to how the reward is used, so that the reward is less controlling by the giver.
4. They are not competitive – people who achieve an expected standard qualify and receive the reward. 
5. That a high proportion of staff will receive the reward. For example, around 50% of a department each year receive a surprise acknowledgment or 80% of sales reps make the recognition event.  
6. Expect managers to use the recognition awards and not use the funds to balance other lines of their budget. 

Like for the 14 year-old on the football field, you can’t replace the task itself being the motivator and being acknowledged with a sincere thank you for a job well done. 

Andrew O'Keeffe
[email protected]


Andrew O'Keeffe is a Human Resources Executive. He has observed bosses for many years, has worked for bosses and has been a boss. As a result of these studies he has written one of the very best leadership books ever, called 'The Boss'and recently released 'Hardwired Humans'.

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