This is a controversial article in the Harvard Business Review by Alfie Kohn, discussing incentive plans.
WHY INCENTIVE PLANS CANNOT WORK, by Alfie Kohn, Harvard Business Review on Compensation
Most managers believe in the redemptive power of rewards. However, a growing collection of evidence supports an opposing view.
Research suggests that, by and large, rewards succeed at securing one thing only: temporary compliance. Once the rewards run out, people revert to their old behaviours. Incentives (what psychologists call extrinsic motivators) do not alter the attitudes that underlie our behaviour. They do not create an enduring commitment to any value or action.
Studies of pay (especially at the executive level) and performance have found little correlation between the two. By contrast, training and goal-setting programmes had a far greater impact on productivity than did pay-for-performance plans.
Why rewards fail
Why do most executives continue to rely on incentive programmes? "Do this and you'll get that" is part of the fabric of American life. Rewards buy temporary compliance, so it looks like the problems are solved. It's harder to spot the harm they do over the long-term.
Pay is not a motivator. Studies have shown that although too little money can irritate and demotivate, that does not mean that more money will bring about increased motivation. Studies show that when people are asked to guess what matters to their coworkers or subordinates, they assume money heads the list. But put the question directly - "What do you care about?" - and pay typically ranks only fifth or sixth.
Rewards punish. Managers understand that coercion and fear destroy motivation. KITA ("kick in the pants") may produce movement, but never motivation. What most managers fail to realise is that this is equally true of rewards. Punishment and rewards are two sides of the same coin. Rewards, like outright punishment, are manipulative. "Do this and you'll get that" is not really very different from "Do this or here's what will happen to you". By making that bonus contingent on certain behaviours, managers manipulate their subordinates, and that experience of being controlled is likely to assume a punitive quality over time. Further, not receiving a reward one had expected to receive is indistinguishable from being punished. The more desirable the reward, the more demoralising it is to miss out.
Rewards rupture relationships. The surest way to destroy cooperation is to force people to compete for rewards or recognition or to rank them against each other. For each person who wins, there are many others who carry with them the feeling of having lost. Furthermore, when employees compete for a limited number of incentives, they will most likely see each other as obstacles to their own success. Worse still, few things threaten an organisation as much as a hoard of incentive-driven individuals trying to curry favor with the incentive dispenser.
Rewards ignore reasons. Relying on incentives to boost productivity does nothing to address possible underlying problems and bring about meaningful change. Some studies have shown that productive managerial strategies are less likely to be used in organisations that lean on pay-for-performance plans, and that pay for performance actually impedes the ability of managers to manage.
Rewards discourage risk taking. People will do precisely what they are asked to do if the reward is significant. There is the root of the problem - people become less inclined to take risks or explore possibilities. The casualty of rewards is creativity. Tell people that their income will depend on their productivity or performance rating, and they will focus on the numbers. Do rewards motivate people? Absolutely. They motivate people to get rewards.
Rewards undermine interest. If our goal is excellence, no artificial incentive can ever match the power of intrinsic motivation. People who do excellent work do so because they love what they do, not to collect a paycheck. What is more surprising though is that the research consistently shows that rewards, like punishment, undermine the intrinsic motivation that results in optimal performance. If we go to work thinking about the possibility of getting a bonus, we come to feel that our work is not self-directed. Rather, it is the rewards that drives our behaviour. Studies by psychologists indicate that the recipient of the reward assumes, "If they have to bribe me to do it, it must be something that I wouldn't want to do."
Outside of psychology departments, few people distinguish between intrinsic and extrinsic motivation. Incentive plans fail because they are based on a patently inadequate theory of motivation. Less money can demotivate, but that doesn't mean that more of it will motivate. Promising a reward to someone who appears unmotivated is a bit like offering salt water to someone who is thirsty.
Pay people well and fairly, then do everything possible to help them forget about money. Managers should stop manipulating employees with rewards and punishments and stop pushing money into their faces.
Excellence comes from the three C's:
Choice - employees should be able to participate in making decisions about what they do every day.
Collaboration - the need to structure teams in order to facilitate an exchange of ideas and a climate of support.
Content - refers to what people are asked to do, as in, "If you want people motivated to do a good job, give them a good job to do."
Innovation and excellence are the natural results of helping people experience intrinsic motivation. But intrinsic motivation cannot survive in an organisation that treats its employees like pets.