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The “Undermining Effect” Strikes Again: Why Your Performance Incentives Are a Buzzkill

3 minute read

By Stavy Papasotiriou, Organisational Psychologist and Founder of Work Unlocked

Dazzling employees with incentives seem like a surefire way to boost their performance, right? Well, hold your applause! We're about to uncover the dirty little secret behind performance incentives. You know those bonuses, pay raises, and even the promise of a reality show? Well, it turns out they might be doing the exact opposite of what you expect. Brace yourselves as we dive into the world of incentives that dull thinking and stifle creativity. It's time to expose the truth!


If you want to boost performance and motivate your employees, the common belief is to rely on performance incentives. From bonuses to pay increases, organisations often turn to extrinsic rewards as the go-to strategy. However, what if we told you that these incentives may not be as effective as you think? In fact, they might be doing more harm than good, dulling thinking and stifling creativity.

Extrinsic incentives, such as financial rewards, can be motivating, but only to the extent that individuals see them as instrumental in attaining other valuable things in life, like food, housing, or pleasure. The problem arises when these external rewards start controlling individual motivation, thereby diminishing the satisfaction of autonomy and intrinsic motivation. Unless your incentives are exceptionally attractive and your employees are not required to perform quality-based tasks, focusing on increasing intrinsic motivation might yield better results.


Besides the money talk not walking the talk, it seems that companies have been playing the incentive game wrong. Research has also shown that there are three key design flaws in companies’ current approaches:

  1. Incentives work as intended: When incentives align with desired behaviours, individuals tend to perform the actions that are rewarded. Defective design and implementation are often the culprits behind poor performance, dissatisfaction, and demotivation.
  2. Objective, but incomplete measures: Objective measures are vital in evaluating performance, but they often fall short of capturing all critical aspects of a job. Incomplete incentive systems can inadvertently promote behaviours that are rewarded, but not necessarily beneficial to the organisation's overall goals.
  3. Uninfluenceable measures: Incentive systems with measures beyond an individual's control can lead to unintended consequences. The lack of influence over the performance outcomes may push employees to manipulate data or engage in unethical practices.


It's time to rally the troops and tackle the hurdles of incentive system implementation. Here's how we can save the day:

Management's Got Your Back! When it comes to implementing innovative incentives, management's commitment is key. It's like assembling the Avengers - everyone needs to be on board to deal with the inevitable "kinks" that arise. Addressing implementation issues and ensuring consistency with the system's philosophy is crucial for long-term success.

Surprise! We Just Blew the Expectations Out of the Water! Setting low-performance standards can backfire, as employees may easily surpass them, leading to higher-than-expected payouts. Managers must recognise the power of incentive systems and avoid undermining employee motivation by constantly adjusting standards. So, let's aim high, challenge our heroes, and create a whirlwind of motivation that nobody saw coming!


It's time to rewrite the script on performance incentives! While financial rewards can play a part in motivating employees, let's not forget the bigger picture. By finding the perfect balance between intrinsic and extrinsic rewards, we can create a workplace that's bursting with engagement, autonomy, and mastery. So, let's bid adieu to the dull and uninspiring incentives of the past. It's time to unleash the power of motivation and transform our workplaces into action-packed arenas where everyone can thrive!


About the author

Stavy Papasotiriou is an organisational psychologist and the visionary behind Work Unlocked — a leading HR consultancy on a mission to revolutionise employee engagement, performance, and retention in businesses worldwide. With a profound understanding of HR practices, Stavy leverages psychological principles to unleash the untapped potential of workforces. At Work Unlocked, Stavy crafts bespoke strategies that are grounded in research and tailored to each organisation's unique needs. These strategies are designed to yield remarkable results while requiring minimal resources.

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