« Compensation Times

Incentives Don’t Work, Yet We Keep Using Them


For those who haven’t read Daniel Pink’s “Drive,” the best-selling book on what really motivates us today, make the time to do so, because it will illustrate to you quite clearly why it is time to stop wasting your precious time and resources on incentive programs that don’t work.  In fact, I’ll give you a challenge — find a legitimate study that shows that they do work consistently in a normal corporate environment — not a case study, or in someone’s dissertation, or in some isolated situation with one company measuring performance over one measurement cycle.  Find a study showing the long-term gains that come from incentives, but more importantly, find a study that shows that the incentive program actually changed long-term behavior.

If you need further evidence, look to World at Work’s recent study “Incentive Pay Practices:Privately Held Companies.”  Among all the findings of how frequently incentive plans are used, which seems to convince the authors that they are needed, go to the one question that really matters:

8. On a scale of 1 to 5, how effective is your annual incentive plan at achieving its objectives?

In the text, we see the following conclusion:

Most respondents indicated that their AIPs were moderately effective…

But the chart says something completely different.  On a scale where 1 is “effective” and 5 is “not effective,” only ten percent (10%) rated their plans as “effective.”  A total of 35% reported either a “1” or “2.” On this scale, anything less than “effective” is by definition… “less than effective.” The truth is, at best a third of those with incentive problems felt they might make a difference — how much effort should there be in trying to craft programs with such a poor return on investment?   The World at Work research report proves the point — management is wasting its time and money on programs that don’t work, and the evidence of why is right there:

  • too much discretion
  • not enough risk/reward
  • poor communication
  • poor goal setting processes

As Pink points out, incentive plans are fundamentally an attempt to manipulate people into doing something they don’t want to do.  Rather than focus on manipulating people, spend your time and efforts building a work environment that is conducive to the kind of people you need to meet your mission… then hire people who are motivated by what they do, and care for the organization’s mission… and then get out of their way.