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The ancient cascade process of goal-setting and comprehensive enterprise-wide communication is necessary to prevent perverse incentives. A close friend wrote his PhD dissertation in the 1960s on the negative correlation between short-term ROI change and corporate profitability: managers sold off all their assets, got big bonuses and moved on before the roof fell in. The second problem with incentives is that you get the behaviors you reward.

It's true that many rewards motivate people to make their own area successful. A well-balanced rewards program motivates people to act in the best interests of the entire company. Much harder. Much cooler.

Great points, Jim and Laura. Rewards programs must be very carefully structured or you reward the wrong things. I once wrote about a common scenario:

Call centers will often set up reward structures based on call time or number of calls handled within a set amount of time. Yet such practices merely encourage representatives to get callers off the phone as quickly as possible, and not necessarily give the customer the level of service or help they truly require. So the representative is rewarded on essentially poor customer service and potentially a destroyed customer relationship.

But Dilbert told it better in the strip here: http://www.recognizethisblog.com/2009/10/are-you-rewarding-bad-behavior/

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