How incentive programs cause people to behave badly – and what to do about it

Organisations that use incentive programs to boost performance may be harming rather than helping.

Research published in the Academy of Management Annals finds that incentives "can be a cure as well as a poison" for workplaces.

An analysis of 361 articles and studies on incentive programs reveals countless examples of negative outcomes, according to Tae-Youn Park, lead author of the research, in the Washington Post.

• Doctors who were rewarded for achieving better patient outcomes ensured their bonuses by selectively admitting only healthier patients.
• Teachers and school administrators who were rewarded for better-performing classes had higher frequency of cheating on standardised tests.
• CFOs whose bonuses were tied to financial targets were more likely to withhold negative information.

The research comes as many employers prepare to award year-end performance bonuses.

In Canada, data from Robert Half revealed that half of employers plan to award year-end bonuses to employees.

More employers across Malaysia are also expected to give employee bonuses in 2023, according to the Malaysian Employers Federation.

Incentives for good

Negative outcomes from incentives depend greatly on how they are structured, Park told the Post.

“People tend to focus on the goal over the value of what they’re doing.”

Park pointed out some lessons in the research for incentive programs. For example, incentives geared to team goals were more likely to promote unethical behaviour than those pegged to individual performance.

Incentives should also come with some form of monitoring and penalty for cheating, as the research also noted that lack of accountability measures can tempt employees to commit bad behaviour.