However, financial incentive and bonus systems often result in less performance plus other unintended consequences.
Psychologist Sam Glucksberg, in his famous candle experiments, predicted that cash awards would motivate teams to produce better solutions faster. However, the opposite occurred. Teams that had opportunities to earn larger cash awards actually took longer to complete their work.
A number of studies in actual companies show that financial incentives often lead to less, not more, performance. Additionally, incentives may encourage jealously, turnover, and cheating.
In an effort to improve food quality, a large canning company offered bonuses to employees who found insect parts in their food products. Guess what happened. Employees started bringing insect parts from home, tossing them into the process and later discovering the parts and claiming bonuses.
For very repetitive work, incentive systems may actually increase performance. But for assignments that require problem solving, incentives change the focus from “get the best solution” to “do what you have to do to get the award.”
What then is the best way to reward high producers? How about just paying them more based on managers’ judgements?