6 Stories of How Incentives Went Haywire

Incentive programs are designed to motivate and reward behavior that aligns with organizational goals. When done right, they can be powerful tools to drive productivity, improve employee engagement, and achieve business objectives. But when poorly designed, they can backfire spectacularly, leading to outcomes no one anticipated. Here are six real-life examples of incentive programs gone wrong and the lessons they teach us.

The Wells Fargo Scandal

Wells Fargo, one of the largest banks in the United States, implemented a program to incentivize employees to open new customer accounts. The idea was to increase cross-selling and revenue. Employees were rewarded for the number of accounts they opened, with aggressive sales targets driving the program.

What went wrong?

To meet unrealistic goals, employees began opening millions of unauthorized accounts without customer consent. This practice went unnoticed for years but eventually led to a massive scandal. Customers were charged fees for accounts they didn’t authorize, and the bank was hit with $185 million in fines, along with irreparable damage to its reputation.

Lesson: Incentives should drive ethical behaviour. Programs must be monitored closely to ensure they don’t encourage fraud or unethical practices.

The Cobra Effect in Colonial India

During British colonial rule in India, authorities were concerned about the growing population of venomous cobras. To control the situation, they offered a bounty for every cobra skin turned in.

What went wrong?

Instead of reducing the cobra population, people began breeding cobras for the bounty. When the authorities realized what was happening and ended the program, breeders released the snakes, making the problem worse than before.

Lesson: Incentive programs should anticipate and mitigate potential unintended consequences.

The Sears Auto Centers Scandal

Sears, a once-prominent retail giant, offered mechanics at its auto centers incentives based on the revenue they generated. This seemed like a straightforward way to boost profitability.

What went wrong?

The program incentivized mechanics to recommend unnecessary repairs and services to meet their revenue targets. This led to widespread customer distrust and a federal investigation into the company’s practices. Sears’ reputation was severely damaged, contributing to its eventual decline.

Lesson: Incentives should align with customer satisfaction and trust, not just revenue.

The Teacher Cheating Scandal in Atlanta

In Atlanta, a school district implemented a performance-based incentive program where teachers’ bonuses were tied to their students’ test scores. The goal was to improve academic outcomes.

What went wrong?

Faced with intense pressure to meet targets, some teachers and administrators resorted to altering students' test answers. The cheating scandal was exposed, leading to legal consequences for those involved and a significant blow to the education system’s credibility.

Lesson: Incentives should be realistic and not force individuals into compromising their integrity to achieve goals.

Overstock Inventory at a Tech Retailer

A major tech retailer incentivized its sales team to push certain products by offering higher commissions on those items. The intent was to clear excess inventory.

What went wrong?

While the sales team focused heavily on the incentivized products, they ignored other inventory, leading to overstocking of unsold items and a mismatch in demand and supply. This created financial strain and operational inefficiencies for the company.

Lesson: Incentive programs must balance organizational priorities and avoid creating silos in focus.

Call Center Metrics Gone Wrong

A large customer service center incentivized employees based on how quickly they could resolve calls. The aim was to improve efficiency and reduce wait times for customers.

What went wrong?

The program backfired as employees rushed through calls, often ending them before fully resolving customer issues. This led to repeat calls, frustrated customers, and a decline in overall satisfaction.

Lesson: Incentives should reward outcomes, not just processes. Focus on metrics that truly measure success.

Conclusion

These six stories highlight the potential pitfalls of poorly designed incentive programs. While the intent behind these programs was often good, the lack of foresight, monitoring, or alignment with broader goals led to unintended and often disastrous results.

To design effective incentive programs, organizations must:

1. Align incentives with desired behaviors: Clearly define what success looks like and ensure the program rewards it.
2. Anticipate unintended consequences: Think critically about how people might respond to the program.
3. Monitor and adjust: Regularly evaluate the program’s impact and make adjustments as needed.

Foster ethical behavior: Ensure incentives encourage integrity and align with organizational values.