3 Ways Bad Incentives Can Hurt You
The idea for incentives almost always comes from a positive place. Businesses begin with the desire to motivate their workforce towards some end goal, and in exchange establish some sort of rewards program for their employees. However, somewhere along the way some incentives can turn bad, taking a turn for the worst, and ultimately have a negative effect on your workforce.
Bad Incentive Examples
1. VA Hospitals Driving the Wrong Behavior
When incentive programs are introduced hastily or without a thorough thought process, you may find that your incentives actually start to encourage the wrong behavior.
In a very public scandal from earlier this year, it was uncovered that an incentive based on performance measures was actually leading some VA hospitals to manipulate important information in order to secure the incentives offered to them. This behavior not only hurt the Veteran Health Association, but more importantly affected innocent people waiting for treatment and appointments.
Download our guide, “Top 12 Compensation Mistakes," for more on weak incentives and errors to avoid. Or, keep reading for examples of how incentives can go bad.
2. Laundry Company Demotivating the Workforce
The most common intention of incentives is to motivate and encourage productivity in the workforce. However, the opposite effect can occur when bad incentives are allowed to flourish.
In this case, a Mid-western laundry company introduced an incentive program based on work attendance and punctuality. The program ran for 9 months with a raffle at the end of each month for employees who didn’t have any un-excused absences or tardy days. After running the program and reviewing productivity, it was found that the program was actually de-motivational. Instead of coming into work tardy, employees realized that they could call in sick, thereby avoiding work completely for the day. Overall there was a 6-8% decreased in productivity per month, which equates to an approximate loss of $8500 each month.
3. Uber Making a Costly Mistake
When incentives take a turn for the worse they can hurt your bottom line and be a costly mistake.
The ever-popular car service learned this mistake the hard way. In 2012, when Hurricane Sandy was making landfall on NYC, Uber decided to enable surge pricing to incentivize their drivers to work during the storm. However this incentive was at the cost of the user and after a backlash on social media from riders, Uber had to cover the cost of the surge pricing for the user, but still uphold the incentive for their drivers. This was an expensive decision but ended up saving their reputation.
These are just a few examples of what can happen when bad incentives are used in the workplace. However this is not to say you have to fall victim to bad incentive programs. In fact, when successful programs are introduced, not only do they encourage production and healthy competition amongst your employees but they can help drive performance to meet overarching company objectives.
Top 12 Comp Mistakes: The Bad & The Terrible
Since 2005, Xactly has worked with thousands of customers and managed billions of dollars in incentive compensation. Given this industry experience, we’ve seen companies make the same mistakes over and over again, even with good intentions in mind. Find out the twelve most common compensation mistakes in the latest eBook from Xactly.