Experts have proposed many explanations for why incentive plans fail. Their reason can be summarize by the following reasons with the following points:
Performance pay can’t replace good management. Performance pay is supposed to motivate workers, but lack of motivation is not always the culprit. Ambiguous instructions, lacks of clear goals, inadequate employee selections and training, unavailability of tools, and a hostile workforce are some other factors that impede performance.
You get what you pay for. An incentive plan that rewards a group based on how many pieces they produce may lead to rushed production and lower quality.
Pay is not a motivator. Recall that psychologist Frederick Herzberg says employers should provide adequate financial rewards, and the build other, more effective motivators (like opportunities for achievement) into jobs. More challenging jobs and employee regulations often make more sense than do financial incentive plans.
Rewards punish. Many view punishment and reward as two sides of the same coin. Herzberg says, “Do this and you’ll get that” is not very different from “Do this or you won’t get that.”
Rewards rupture relationships. Incentive plans have the potential for encouraging individuals (or individual groups) to pursue self-interest at the expanse of teamwork.
Rewards can have unintended consequences. People tend to put their efforts where they think they’re being measured. So, for instance, reward only productivity and you may end up with poor quality.
Rewards may undermine responsiveness. When employee’s main focus is on achieving some specific goals like cutting costs, any changes or distractions make achieving that goal harder for the employees.
Rewards undermine intrinsic motivation. Edward Deci said that contingent financial rewards (incentives) may actually undermine the intrinsic motivation that often results in optimal performance. The argument is that financial incentives undermine the feeling that the person is doing a good job voluntarily.
Gary Dessler (2008): Human Resource Management. Equal Opportunity and the Law, 11th ed., Upper Saddle River/NJ (Prentice Hall)
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