Know the Negative Consequences of Incentive Programs

Incentive plans are incorporated into the concept and culture of a modern business. Incentives, awards, and bonuses are part and parcel of motivation programs companies widely rely on within their employee-oriented internal systems.

However, aimed at boosting productivity, bumping up performance, and speeding up goal achievements, incentive programs are not all about positive outcomes. They might result in negative consequences many leaders do not expect. And you should be aware of those to be able to optimize incentive plans for your organization.

An Incentive Program: What Is It and Why Is It Important

An incentive program is an organized system meant to motivate or reward individual employees or teams for hitting specific goals, delivering certain results, or coming up with some ideas or suggestions.

Usually linked to some performance metrics or milestones, incentives might take different forms, including:

  • Monetary bonuses;
  • Valuable prizes;
  • Recognition;
  • Promotion options.

A well-designed incentive plan is an effective employee performance management and control tool. When smartly elaborated and wisely used, it can:

  1. Increase motivation: Clearly outlined goals and objectives should be aligned with tangible bonuses offered by incentive plans. When generously rewarded for generating the expected outcomes or outperforming, employees are motivated to work harder and achieve even better results;
  2. Boost performance: Properly set priorities, clearly uttered expectations, and accessible resources paired with appropriate incentives inspire employees to improve their performance.
  3. Promote teamwork: Rewards for group achievements and the promotion of healthy competition encourage more productive teamwork through collaboration and mutually beneficial interaction;
  4. Increase retention: By recognizing achievements, improvements, and effort and by rewarding high performers, such programs keep employees interested in and satisfied with their jobs, thus, increasing retention and reducing turnover;
  5. Drive innovation: Valuable incentives push employees into experiments and enable them to think out of the box. They use their creativity and wit to the full to produce extraordinary solutions, thus, generating innovations and new ideas.

Unwanted Consequences of Employee Incentives

Intended to expedite progress and level up employee performance by driving the desired behaviors and outcomes, incentive programs might result in a number of unintended negative consequences too.

Most often than not, that happens due to a faulty program structure that makes some employees feel less valued and respected, thus, also making them reluctant to perform to their best effort and decreasing overall productivity and morale.

To know how to avoid possible negative outcomes, you should be aware of them:

  1. Hurting long-term goals: By prioritizing immediate targets and short-term objectives, incentive plans often shift the focus away from the long-term goals and push them to the back burner. This might cause neglecting non-incentivized tasks and broader company strategy since many important factors will be simply disregarded or ignored;
  2. Unethical behavior: Incentive plans promoting competition often end up encouraging unethical behavior. Instead of interacting and seeking to work together for a single goal, employees start working against each other, thus, ruining trust and the collaborative atmosphere inside the team. More than that, some might even tend to manipulate or cheat to catch up with the targets. Chasing incentives, they compromise not only teamwork but also trust-based relations with customers and stakeholders;
  3. Low job satisfaction: Meant to motivate and inspire, poorly designed incentive programs can create a stressful work environment that can have a negative impact on employees’ emotional state and well-being, causing burnout, frustration, and a sense of unfairness. Eventually, it will result in high turnover rates and problems retaining talent;
  4. Teamwork disruption: Stress and unhealthy competition will push employees to work for their individual targets. Feeling reluctant to work for group goals, they will destroy the team’s integrity from within and hinder achieving collective success, not to mention strained relations with colleagues.

Examples of Negative Incentive Program Consequences

To demonstrate how inappropriately structured incentive plans can bring negative outcomes, here are a few real-life examples:

  • At Wells Fargo, employees initiated millions of fraudulent bank accounts to meet sales goals and get rewards;
  • At Campbell’s Soup, back in 1978, workers sabotaged machinery and spoiled soup to achieve production goals;
  • In 2009, Toyota faced an unintended acceleration crisis that was partially caused by prioritizing high production goals over quality control;
  • In 1997, Nike corporation was accused of using sweatshop labor to increase revenues and hit profitability goals. At that time, the company put its brand power at risk.

How to Prevent Unintended Outcomes of Incentive Programs?

To make your incentive plans work as expected and bring only positive outcomes both to employees and to your company, follow these strategies that will help keep negative consequences at bay:

  1. Make sure incentives are in line with the organization’s long-term goals and align with its missions and values to avert counterproductive behavior and promote step-by-step growth;
  2. Determine clear and measurable success criteria to avoid misunderstanding and confusion among employees and let people see that everyone can earn an incentive;
  3. Give ongoing feedback on employee performance to let people see how they progress toward getting a reward. Along with constructive feedback and support, workers should have access to all the tools and resources they need to succeed;
  4. Ensure incentive plans that don’t create aggressive competition. Ensure programs promoting collaborative work and collective success;
  5. Consistently monitor the program implementation to identify negative consequences and make adjustments to neutralize them.

In Conclusion

To get the most out of your incentive programs and create incentives that will drive your employees and organization to success, the motivation plans should be developed with diligence and implemented with care and close attention. Never focus on financial rewards only and always seek a balance between personal employee strivings and company goals.

Be flexible and don’t limit incentive programs by a single approach. Come up with different options to match varying employee needs, priorities, and preferences.