Business & Finance

How Incentive Plans Can Backfire

How Incentive Plans Can Backfire

Incentive plans are great tools to motivate employees and increase productivity, but they also bring some inherent risks.

For businesses, incentive plans are a multi-layered approach that can increase productivity, reduce turnover, and build a competitive edge. And for employees, they can make work more fun or even add to their income. However, Dr. Jordan Sudberg argues that incentives can have unexpected and undesirable outcomes. That if employees are not consulted regarding the incentive plans, they may feel manipulated or coerced into performing to a certain level because of the financial reward.

Dr. Sudberg agrees that incentive plans can work in some cases, but he also believes that if businesses want to set up a plan, it’s not enough to simply present the business goals and then force employees to achieve them. Instead, incentives can be used to increase employee satisfaction and team cohesion when plans are developed with them in mind.

How do Incentivized Employee Plans work?

There are three main incentives: bonuses, contests, and contests with prizes. These may be monetary bonuses or other rewards like trips, gift cards. Nominees for the prizes are usually selected from all of the employees (or a subset of them) who have reached some goals – or have done something exceptional. In the case of contests, a winner is selected through a process where all employees nominate colleagues they think should win. The final result of the deadline is either no winner or one, sometimes with many runners-up.

Why Incentive Plans Won’t Work

Here are five reasons Dr. Jordan Sudberg gives as to why incentive plans can backfire:

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1. False Expectations

This is when you expect someone to give a lot more than they can actually give. In other words, they are either over-incentivized or under-qualified. Take the example of a salesperson who is salaried and you then decide that they are going to get a bonus if they make a million dollars in sales this year. That is an unrealistic goal that would only be possible if you also gave them the time and support to pursue it – which according to their current salary may not be feasible. In the end, they may never reach the goal and then you have a disgruntled employee who feels like you set them up to fail.

2. Incentive Backlash

This is when people who are not being rewarded for their participation in an effort feel like they are being taken advantage of. They feel like they are doing more work than others while getting less out of it. This can lead to low morale, increased absenteeism and even hostility towards management or co-workers.

3. Presumption

This is when you assume other people will do what you tell them. Incentive plans can be a great way to motivate employees but it is important to remember that if an employee does not feel like they are being treated fairly and equitably then that is a problem of miscommunication, not incentives. Once you have corrected this miscommunication then it would be natural for them to look at their next raises as an entitled employee – which can lead to some awkward discussions at the next review.

4. They Discourage Risk-taking

Incentive plans often create a safety net or guaranteed return for employees which can take the risk out of things. When this happens, you’re rewarding people for what they should have been doing in the first place. Instead of incentivizing them to do more, you are incentivizing them to be lazy. This can lead to stagnation and uninspired work and is one of the biggest problems with these plans.

5. They Can Lead to Unethical Behavior

Incentive plans can lead to unethical behavior when employees feel like they are being forced to do something unethical in order to succeed. As an example, let’s say your company is selling a product that is perceived as bad for the environment and you need people to push more of it. If your employees feel like they will not succeed unless they sell that product, then you are incentivizing them to act unethically in order to allow them to keep their jobs.


Incentives are a great way to motivate employees and build productivity but if you do not monitor them carefully, they can do more harm than good. By understanding these risks, you can correct any miscommunication that may have occurred and ensure that your plan remains both ethical and safe.