Susanna Gallani

These findings echo one of the main concerns associated with monetary rewards that sometimes fail to accomplish their goals. Academics refer to this phenomenon as the crowding-out effect of explicit incentives on intrinsic motivation. In other words, associating an economic value with a certain activity changes the nature of the exchange. If health care workers sanitize their hands because it is in the best interest … [ Read more ]

Louis V. Gerstner

Too often a company’s executive motivation system flies in the face of strategic decision making. This occurs for two reasons. First, good managers tend to be promoted so fast that they never have to live with the medium- to long-run outcome of their plans. Second, incentive compensation is often tied either to short-term earnings performance or to stock-price movements, neither of which has anything to … [ Read more ]

Joel Spolsky

The problem with most incentive systems is not that they are too complicated — it’s that they don’t explicitly forbid the kind of shenanigans that will inevitably make them unsuccessful.

Richard P. Rumelt

Incentives are good in principle, but did Bear Stearns get competent risk management in return for the $4.4 billion bonus pool it distributed in 2006? Does any organization have to give its CEO a $40 million bonus to secure his services? If you pay people enough money to make any future payment beside the point, don’t be surprised when they take vast long-term risks for … [ Read more ]

George Akerlof, Rachel Kranton

People respond almost too well to monetary incentives. That is, ‘firms get what they pay for’, but since these schemes cannot be targeted well, what firms get is often not what they want.

If an organization is going to function well, it should not rely solely on monetary compensation schemes. The ability of organizations to place workers into jobs with which they identify and the … [ Read more ]

Marc Hodak

Most boards believe that rewarding managers through stock options is an effective incentive leading to long term shareholder value. Equity ownership, by definition, aligns managers and shareholders. But effective incentive implies a motivation to do something, as opposed to a simple desire to see the share price go up. Most senior executives, right up to the CEO, will tell you that movement in the stock … [ Read more ]

John J. Ballow, Brian McCarthy, Michael J. Molnar

Conventional incentive plans work only with current value, leaving future value-which is often the larger amount-up for grabs.

Alfie Kohn

In short, “Do this and you’ll get that” makes people focus on the “that” not the “this.” Do rewards motivate people? Absolutely. They motivate people to get rewards.


The failure of any given incentive program is due less to a glitch in that program than to the inadequacy of the psychological assumptions that ground all such plans.