The quote by Mark Hodak, “Every incentive to perform is an incentive to cheat. You can’t have one without the other,” highlights a critical tension in organizational management. While incentives are powerful tools to drive performance, they inherently carry risks that need careful consideration.

Challenges of Offering Incentives to Increase Employee, Group, or Organizational Performance

Offering incentives, despite their potential benefits, comes with several significant challenges that can derail their intended positive impact:

1. Unintended Behaviors and Ethical Lapses (The “Cheating” Incentive):
   • Gaming the System: Employees may focus solely on the metric being incentivized, even if it means neglecting other important tasks or finding loopholes in the system. For example, incentivizing sales volume might lead to selling products unsuitable for customers, or incentivizing speed might compromise quality.
   • Data Manipulation: As Hodak’s quote suggests, the pressure to hit targets for a reward can lead to falsifying reports, fudging numbers, or distorting outcomes to qualify for the incentive.
   • Short-Term vs. Long-Term Focus: Incentives often reward immediate results, potentially discouraging long-term thinking, innovation, or strategic investments that don’t yield quick, measurable returns.
   • Ethical Compromises: The desire for a reward can push individuals or groups to engage in unethical or even illegal behavior, as seen in scandals where aggressive sales targets led to widespread misconduct.
2. Creation of a “What’s In It For Me?” Culture:
   • Erosion of Intrinsic Motivation: Over-reliance on extrinsic (monetary) incentives can diminish employees’ intrinsic motivation (doing work for its inherent satisfaction, purpose, or interest). Once the incentive is removed, performance may drop.
   • Entitlement: Employees might come to expect incentives for standard performance, leading to dissatisfaction if incentives are reduced or removed, or if they don’t meet targets.
   • Focus on Individual Gain Over Collaboration: If incentives are purely individual-based, they can foster unhealthy competition, discourage teamwork, and lead to a reluctance to share knowledge or help colleagues, ultimately harming overall organizational performance.
3. Fairness, Equity, and Morale Issues:
   • Perceived Unfairness: If the criteria for incentives are not transparent, or if some employees feel they have less opportunity to earn them due to external factors or their role, it can lead to resentment, jealousy, and a decline in morale.
   • Demotivation of Non-Recipients: Employees who consistently miss targets or are in roles not eligible for incentives can become demotivated and feel undervalued, leading to higher turnover in those areas.