Why Incentive Plans Cannot Work

Since the pay of each individual in the union is determined by factors other than his own achievement, his incentive to produce deteriorates. Once again, the overall output is bound to be reduced thereby — which means that the overall reward to be shared won’t be as high as it could be.

Easily measured, easily understood goals need to be carefully designed and agreed upon. Performance needs to be assessed fairly to avoid violent end-of-year arguments. Difficult messages need to be delivered with actionable suggestions, so an employee sees a clear path to greater rewards in the future. But the most difficult job in redesigning ince

Back in 1976, two economists, Michael Jensen and William Meckling, published a paper that has been committed to memory by those in the first camp. The paper, which has been one of the most widely cited of the past three decades, focused on a problem known as agency theory, or incentive theory: why don’t managers always behave in a way that is in th