Harvard Business School Case Study: Sins of Commission

The Dilemma with financial incentives as a tool to improve performance is that, although they are designed to be motivators, they often backfire and have a negative effect.  The problem is that companies are so adamant about using financial incentives as the sole instrument to drive behavior to increase performance.  The reason for this, in my opinion, is laziness.  It is much easier to say, the performance evaluation and incentive programs are in place and nothing more needs to be done.  Also, this is what has been done for years, so companies often find themselves following other companies models and what they are told by consulting firms than to create systems that are better fits for their organization.

Another big reason why incentive programs are often not successful, is because if the guidelines are too simple, it creates ways for people to cheat the system to get the incentive thus brings down the effectiveness of the program; and if the guidelines are made to complex, it makes it hard for employees to follow them and it makes it hard for managers to enforce them.

I believe that it is possible to extrinsically motivate people, but I see financial  incentives often demotivate people rather than motivate them.  Even though the buzz nowadays is that money does not motivate people, I think money is a huge driving force in our culture.   The reason I believe money often demotivates people is because I believe the systems in place in corporations today, are not consistent enough.  Not the same rules to qualify for incentives apply to everybody.  Sure, people are more intrinsically motivated than extrinsically.  They either want to make a difference and move up in their career or they don’t.  The financial incentives were put in place to motivate employees who are intrinsically motivated to do even better and to motivate employees who are extrinsically motivated to get aligned with company goals.  Unfortunately, the rules are not followed consistently and most intrinsically motivated people find themselves mistreated because they feel they should be getting higher incentives because of their dedication than the rest of their colleagues.  Not only this brings down the moral in an organization, but also it brings down teamwork because each employee feels the need to compete with their peers to get paid what they are worth.

I believe it is perfectly fine to use incentives to motivate people, but if you do, you better make sure there are rules in place and you better make sure the rules are followed consistently with no exceptions.

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~ by aliahmadian on March 6, 2010.

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