Who This Article Is For
- Owners and HR professionals reviewing evaluation and reward systems
- Managers whose team goals and individual behavior do not fit together
- Leaders increasing motivation alongside organization-wide results
Why Misaligned Incentives Make Performance Systems Backfire
See how rewards can encourage the wrong behavior in sales, development, and support, then connect measures with company goals and review their side effects.
Published
Check What Evaluation Criteria Encourage and Align Them With the Goal
Incentive misalignment occurs when a company's desired results differ from the behavior its system rewards. Even well-intended evaluation systems can encourage number chasing and short-term choices.
The system itself may be directing that behavior. Examine its incentives alongside individual attitudes.
Continue observing how an evaluation system operates after setting its numbers. Consider what behavior each measure creates, or the organization may move in an unexpected direction.
What Is Incentive Misalignment?
It is a mismatch between reward and evaluation rules and the organization's actual purpose.
Suppose the company wants profitable contracts but rewards salespeople only for contract count. Employees increase the count, potentially by accepting low-margin deals.
The system's metric improves while the company's desired outcome does not.
Consequences include:
- Actions aimed only at meeting a number
- Evaluation criteria taking priority over the real purpose
- Individual gain ahead of the team
- Customer satisfaction and long-term profit being postponed
Systems change behavior. The choice of measures can change the organization's atmosphere.
Common Failures
Any company managing through numbers can encounter this problem.
Sales: Excessive Focus on Contract Count
Contract count is visible and easy to compare, which makes it tempting as an evaluation measure.
Used alone, it can encourage:
- More low-margin contracts
- Forced deals likely to be canceled
- Weak follow-up after signing
- Prioritizing an order over customer fit
More contracts do little good if profit and retention fall. Suspect misalignment when numbers improve without meaningful results.
Development: Gaming the Numbers
Rewarding only fixes or completed tasks can prioritize quantity over quality.
Possible consequences include:
- Splitting small fixes into more counted tasks
- Choosing temporary patches over root-cause work
- Prioritizing short-term numbers over maintainability
- Individual evaluation taking precedence over team quality
Reliable development and user value are the real aims. Counts alone miss them.
Support: Shorter Handling Time
Reducing wait times matters, but evaluating only speed can encourage:
- Ending an interaction without enough explanation
- Closing a conversation while concerns remain
- More repeat inquiries
- Lower satisfaction
Ending quickly and resolving the issue are different. Confusing them can protect the metric while losing customers.
Why Good Intentions Produce Bad Effects
Designers may want to improve the organization but overlook how the measures work.
Relying on Easily Measured Numbers
Trust, long-term profit, team contribution, and brand effects can be hard to quantify.
Systems therefore lean toward:
- Counts
- Time
- Frequency
- Sales
- Achievement rates
Numbers are useful, but a convenient measure may not represent the result that actually matters.
People Move Toward What Is Rewarded
People naturally pay attention to evaluation criteria.
Reward individual performance over cooperation and mutual help can decline. Reward new contracts over retention and post-sale relationships may receive less attention.
Before blaming attitudes, examine the actions the system encourages.
Designing Against Unintended Effects
A perfect system is difficult to create immediately, but several principles help.
Connect Measures With the Final Goal
Clarify what the company ultimately wants to increase before choosing counts, frequency, or time.
Ask:
- Does improving this number also improve profit?
- Does it improve customer satisfaction?
- Does it support long-term relationships?
- Does it shift burdens to another department?
Select criteria for their connection to the goal rather than visibility alone.
Combine Perspectives
A single measure encourages narrow behavior.
For example:
| Measure | Risk When Used Alone | Additional Perspective |
|---|---|---|
| Contract count | More low-margin contracts | Margin and retention |
| Revenue | Discounts and unsuitable orders | Gross profit and cancellation |
| Handling time | Inadequate explanations | Satisfaction and repeat inquiries |
Adding many numbers is not automatically better. Avoid relying on just one view.
Include Qualitative Judgment and Review
Helping junior colleagues, coordinating the team, earning customer trust, and preventing problems create value beyond easy counts.
Include qualitative evaluation and avoid permanently fixing the first design.
During reviews, ask:
- Are people acting only to satisfy a measure?
- Is work being pushed onto other departments?
- Is customer value declining?
- Do frontline employees understand and accept the system?
Find and correct side effects during operation.
If feedback does not produce improvement, see Feedback Loops That Turn Frontline Views Into Action. It explains assigning responsibility and checking the results after implementation.
SpreadSite is a no-code website builder that lets you create, publish, and update a website from Google Sheets using ready-made templates.
To keep your company’s services and strengths clearly explained on its website, give SpreadSite a try!
Build a website with SpreadSite →
About the Author
Thank you for reading!
I develop and operate SpreadSite, a service for creating websites from spreadsheets.
It helps people with limited time and money communicate what makes their work appealing. Consider it if you need a website! SpreadSite
Frequently Asked Questions
Q: Would having no incentives be better?
A: No. Well-designed incentives encourage useful action. The problem is rewards that diverge from the company's purpose.
Q: Does this matter in a small company?
A: Yes. One change can strongly affect behavior and atmosphere in a small team.
Q: Isn't numerical evaluation necessary for fairness?
A: Numbers can support a sense of fairness, but miss some contributions. Combining them with qualitative evaluation reduces bias.
Q: How can we recognize a counterproductive system?
A: Watch for achieved metrics alongside falling profit, retention, satisfaction, or cooperation. Compare the measure's success with the organization's actual results.
