When incentive plans reward the wrong behaviors, employees prioritize personal gain over business priorities. Misalignment leads to outcomes like inflated sales of unprofitable products, neglected key accounts, or excessive discounting. Clear goal alignment ensures incentives encourage outcomes that support both individual performance and long-term company strategy.
6 Stories of How Incentives Went Haywire
- Amit Jain
- Jan 13, 2025
- 4 min read
- Last updated on Feb 25, 2026
Introduction
Incentive programs are designed to motivate and reward behavior that aligns with organizational goals. When done right, they can be powerful tools for driving productivity, improving employee engagement, and achieving 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 faced $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, worsening the problem.
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 customer wait times.
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:
- Align incentives with desired behaviors: Clearly define what success looks like and ensure the program rewards it.
- Anticipate unintended consequences: Think critically about how people might respond to the program.
- 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.
Frequently Asked Questions
What happens when incentives are misaligned with business goals?
How can poorly designed incentives hurt teamwork?
Incentive plans that reward only individual achievements can create unhealthy competition, reduce collaboration, and erode trust among team members. When teams focus solely on personal targets, knowledge sharing declines and cross-functional cooperation suffers. Balanced incentives that include team objectives help maintain collaboration and shared success.
Why is it risky to base incentives on incomplete data?
Incentive decisions built on flawed or incomplete data lead to unfair payouts and misdirected efforts. If performance metrics are inaccurate or lagging, employees may chase the wrong targets or dispute results. Reliable, real-time data is essential to ensure incentive payouts are fair and aligned with actual performance.
How can incentive plans unintentionally encourage bad behaviors?
If incentive rules are too simplistic, employees may exploit loopholes or focus on shortterm gains rather than sustainable outcomes. For example, heavy rewards for volume without quality checks can increase returns or customer dissatisfaction. Effective plans consider multiple performance dimensions to avoid unintended consequences.
What prevents incentive plans from remaining effective over time?
Market dynamics, role changes, and evolving product strategies can make incentive plans obsolete. Without periodic review and refinement, incentives that once worked may no longer motivate desired behaviors. Regular assessment ensures plan design stays relevant and supports shifting business objectives.
