By September 22, 2006 2 Comments Read More →

How Incentives Are Ineffective

Reward and Incentive Programs are Ineffective — Even Harmful by Peter R. Scholtes

It’s worth a full post and full link, this article that John Hunter of the Curious Cat blog wrote about and mentioned in a comment to this post of mine.

I love the comment that Sholtes made, passed along by John:

When a client talked about needing to clear out the “dead wood” (poor employees) Peter asked if they hired dead wood or hired live trees and killed them. Peter’s opinion was that they were doing the killing and hiring new people wouldn’t help if you are just going to turn them into “dead wood.” If you are hiring dead wood then stop doing that.

If you’re not reading the comments to the blog posts, you’re missing out on some of the good material that others contribute. If you have comments for this post, or any, click on the comments link and let us know what you think.

Highlights from the Sholtes post:

First, they don’t work There are no credible data to show that any long-term benefit results from such programs. There are data, however, that show that they do harm.

They often set up a form of internal competition in which people strive to look good and look better than their fellow employees. Sometimes looking good becomes more important than doing well.

  • People pass problems on to others elsewhere and later in the system. “Don’t let the problem appear to happen on my watch.”
  • People will circumvent the system for personal gain, causing havoc to the system.
  • People will strive to look good even when it may hurt the customers. Sears auto-service personnel — in order to meet their monthly profit quotas — provided unnecessary repairs and replaced perfectly good parts. The customers paid dearly so that the repair shops could look good.

I’ve seen more harm than good come from incentives in my career. A personal pet peeve of mine is sales incentives that are added on during a year to drive additional sales (this is me speaking as a non-sales person). Your job is to sell… so more incentives are necessary to get you to sell more?

  • Remove the demotivators. Ask people what gets in the way of their doing work they are proud of. Remove those obstacles to pride in work.
  • Focus on improving the processes. You and everyone in your company need to become more aware of what systems and processes are, and how to study them, and improve them.
  • Focus on customers. Something that provides a lot of gratification and satisfaction to employees is to know that customers are excited about the products and services.

The things that get in the way of people doing their work — that’s WASTE. Remove the waste, allow people to improve their processes so they can spend more time focus on customers. That’s why this is a “Lean” topic.

As Deming loved to say “Substitute Leadership” in the place of incentives, quotas, etc.


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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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2 Comments on "How Incentives Are Ineffective"

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  1. curiouscat says:

    I ran across this quote in the Leader’s Handbook by Peter Scholtes, pg. 331: “Why do you hire dead wood? Or, why do you hire live wood and kill it?”

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