Reward and Incentive Programs are Ineffective -- Even Harmful

Mr. Scholtes is principal author of The Team Handbook. He was an instructor in Dr. W. Edwards Deming's seminars for six years. He operates a consulting and seminar business based in Madison, Wisconsin.

My friend Dave from Indianapolis was upset. His daughter Emily had been a good student, an avid reader ... that is until Pizza Hut got into the reward business. It seems Pizza Hut provided teachers with coupons for free pizzas to be awarded to a student when he or she had completed a book. Dave's daughter started reading shorter and less challenging books or just skimmed longer books, so she could get more coupons.

Meanwhile, Emily's classmates also started reading more books. Even those who were not readers started reading. The books they read were short and simple, but at least these kids were reading something. The students who, like Emily, were avid readers, switched their reading preference to short, simple books. Eventually, however, Pizza Hut's reading-for-pizzas campaign ended; and so did the reading ... all reading ... by those who used to be avid readers of challenging books as well as by those who didn't read.

"What my wife and I unwittingly allowed Pizza Hut to do," said Dave, "was substitute their external motivation for our daughter's internal motivation. They replaced her reason for reading and then eventually removed their substitute reason." With pizza coupons no longer available, the kids in the class felt that there was no longer a reason to read.

This story -- a true incident -- demonstrates the fallacy of all incentive programs. Research on rewards, merit and incentive pay programs, etc., shows them to be ineffective and -- as in Emily's case -- even harmful.

To many this will come as a shock. Reward, incentive, motivational and merit programs are sincere, well-intentioned efforts to recognize the good that people do. How could they be the wrong thing to do? How could they be ineffective and even harmful! To read more about this from a valuable resource, with a wealth of rigorous documentation, read Punished by Rewards by Alfie Kohn. I am indebted to Alfie for much of what I write here.

What's wrong with reward, recognition, and incentive systems?

First, they don't work There are no credible data to show that any long-term benefit results from such programs. There are data, however, that show that they do harm.

They often set up a form of internal competition in which people strive to look good and look better than their fellow employees. Sometimes looking good becomes more important than doing well.

The reward programs undermine teamwork and cooperation Employees -- or groups of employees -- competing for a prize (merit pay, contests, rewards, etc.) will regard each other as adversaries. They will act as though they are not part of the same organization, working for common goals, serving the customers together. Instead, they may try to subvert each others' efforts.

Recognition and merit programs often reward those who are lucky and pass by those who are unlucky Far and away the biggest single factor that determines output is the system and its capability. The systems capability is independent of the people doing the work.

If everyone in your company did his or her best, day in and day out, you would affect only a negligible proportion of your current quality or productivity problems. Most of your problems are built right into the system. Those who get rewards are those who are lucky enough to work in a system with fewer inherent problems. (The machines work well, the materials are appropriate, the training is good, the policies promote a good work environment, the methods of work are well tested and perfected, etc.) Those who don't get the rewards are -- by and large -- those unlucky enough to work in dysfunctional systems.

Merit and reward systems create cynics and losers In one Milwaukee company, which had an annual "Employee-of-the-Year" award ceremony, I had an opportunity to meet with the year's winner. I was surprised to learn that she was not proud of her award. She was embarrassed by it. She saw the whole ceremony, with all its hoopla and pizzazz, as an occasion invented by managers, so that they could pose as "employee-sensitive." She had two reasons for her cynicism:

The greatest management conceit is that we can "motivate" people. We can't. Motivation is there, inside people. Our people were motivated when we hired them and everyday, when they come to work, they arrive with the intention of doing a good job. Managers cannot motivate. They can, however, de-motivate. Herzberg established this over 30 years ago (Herzberg, Frederick "One More Time: How Do You Motivate Employees?" Harvard Business Review, September-October 1987, pp. 109-120. This is a reprint with commentary, of an earlier classic paper.)

The greatest managerial cynicism is that workers are withholding a certain amount of effort that must be bribed from them by means of various incentives, rewards, contests, or merit pay programs. Most managers are not conscious of such a pessimistic belief, but many of their "motivational programs" are conducted as though this cynical premise were true.

The greatest waste of managerial time is time spent trying to manipulate people's minds and infuse motivation into them. Managers' time would be better spent doing the following:

Bring awareness of customers into your organization on a daily basis.

This takes hard work and true leadership. Don't waste any more time or energy on perpetuating myths and pretense. Get on with it!