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The toxicity of pay for performance.
1Institute for Healthcare Improvement, Boston, MA, USA.
Quality Management in Health Care
|March 3, 1996
Summary
Pay for performance systems can harm organizational improvement by reducing customer focus, hindering innovation, and eroding teamwork. These systems often stem from an oversimplified view of employee motivation.
Area of Science:
- Organizational Psychology
- Management Science
Background:
- Merit pay and pay-for-performance systems are common but potentially detrimental.
- Understanding the impact of performance-based incentives on organizational dynamics is crucial.
Purpose of the Study:
- To critically evaluate the unintended negative consequences of merit pay and pay-for-performance systems.
- To explore how contingent rewards affect key organizational behaviors and outcomes.
Main Methods:
- Conceptual analysis of incentive systems and human motivation.
- Review of existing literature on performance-based pay and its effects.
Main Results:
- Performance pay can decrease customer focus and the reporting of defects.
- It may lead to avoidance of challenging goals and reduced innovation.
- Teamwork and intrinsic motivation can be negatively impacted.
Conclusions:
- Merit pay and pay-for-performance systems possess inherent flaws detrimental to systemic improvement.
- These systems may reflect a simplistic understanding of complex human motivation.
- Organizations should reconsider the implementation of such reward structures.