Offering Incentives As Motivation Could Backfire On You
Eben Pagan explains why business incentives are one of the most dangerous ideas in business and can destroy intrinsic motivation. He shares psychological research and real-world examples of how rewards can backfire, encouraging entrepreneurs to be extremely cautious when implementing incentive systems.
Key Moments
How to Build a Team Without Dangerous Incentives -- A framework for motivating employees through long-term thinking rather than short-term reward systems
Hire Star Performers Who Think Long-Term
Find star performers who operate on long-term thinking rather than short-term incentive-driven behavior
▶ 7:49
Why Business Incentives Are One of the Most Dangerous Ideas
Incentives are one of the most dangerous ideas ever to hit business and should be used with extreme caution
▶ 0:16
Sharing Wealth Fairly While Avoiding Incentive Traps
Share wealth and proceeds fairly with your team while avoiding performance-based incentive traps
▶ 7:58
Incentive-Motivated People Over-Promise and Under-Deliver
People motivated by incentives are often smooth talkers who over-promise and under-deliver to meet their targets
▶ 7:34
Incentives Cannot Be Removed Once Implemented
You cannot successfully remove incentives once they're implemented. Employees expect to keep them permanently, and you lose the ability to test whether they would perform without rewards.
Relevant Clips19
- How-To
How to Build a Team Without Dangerous Incentives -- A framework for motivating employees through long-term thinking rather than short-term reward systems
- Teaching
How Incentives Destroy Intrinsic Motivation
Incentives can destroy intrinsic motivation by turning enjoyable work into transactional behavior. Research shows people lose interest in activities they previously enjoyed once external rewards are removed.
- Teaching
How Sales Incentives Create Over-Promise and Team Conflict
Incentivized salespeople often become smooth talkers who over-promise to hit their targets, creating conflicts with technical teams who must deliver what was promised but can't be delivered.
- Teaching
Incentives Shift Focus to Gaming Metrics
Incentives shift focus from genuine performance to manipulating metrics for rewards. This creates behavior focused on working the system rather than achieving real results for the business.
- Teaching
Incentives Cannot Be Removed Once Implemented
You cannot successfully remove incentives once they're implemented. Employees expect to keep them permanently, and you lose the ability to test whether they would perform without rewards.
- Teaching
Hiring Long-Term Thinkers Who Don't Need Immediate Incentives
Hire star performers who think long-term and understand that consistent performance will be rewarded over time, rather than those motivated by immediate incentives and rewards.
- Teaching
Can You Test Whether People Would Work Without Incentives
No, once you introduce incentives you lose the ability to test natural motivation. There's no way to determine if someone would have performed the task without the reward.
- Teaching
Incentive Dependency — No Way Back Once You Start
Once you introduce incentives, you cannot test whether people would have performed without them, creating a permanent dependency
- Teaching
Incentives Create Game-the-System Behavior
Incentives create 'game the system' behavior where people focus on working the system rather than achieving genuine results
- Teaching
External Rewards Destroy the Intrinsic Motivation That Existed Before
External rewards can destroy intrinsic motivation, making people lose interest in activities they previously enjoyed
- Teaching▶ 7:34
Incentive-Motivated People Over-Promise and Under-Deliver
People motivated by incentives are often smooth talkers who over-promise and under-deliver to meet their targets
- Teaching▶ 0:16
Why Business Incentives Are One of the Most Dangerous Ideas
Incentives are one of the most dangerous ideas ever to hit business and should be used with extreme caution
Show 7 more
- Teaching▶ 7:49
Hire Star Performers Who Think Long-Term
Find star performers who operate on long-term thinking rather than short-term incentive-driven behavior
- Teaching▶ 7:58
Sharing Wealth Fairly While Avoiding Incentive Traps
Share wealth and proceeds fairly with your team while avoiding performance-based incentive traps
- Teaching
How Advertising Can Unsell Customers Like Incentives Demotivate
Advertising can 'unsell' customers just like incentives can demotivate employees
- Quotable▶ 5:24
How Incentives Train People to Game the System
the first type of behavior that it creates is how do I work the system how do I game the system to get what I want to get out of it
- Quotable▶ 5:16
Knowledge Becomes Permanent Once Truly Understood
once someone gets something it's theirs forever that's it it just gets integrated in as theirs forever
- Quotable▶ 8:25
Be Very Careful — Incentives Don't Work as Expected
be very careful with incentives they do not work out logically the way you think they are going to
- Quotable▶ 0:16
Incentives as One of the Most Dangerous Ideas in Business
incentives in my personal opinion are one of the most dangerous ideas ever to hit business
Entities Touched
Concepts
Questions
Canonical Teachings
Summary
The Hidden Dangers of Business Incentives
Eben Pagan opens with a controversial stance that incentives are among the most dangerous business ideas ever implemented. He warns entrepreneurs to be extremely cautious when using them, as there are no systems to quickly give people intrinsic motivation, but there are proven ways to destroy it through external rewards.
Research Evidence: How Rewards Kill Natural Interest
A psychological experiment with children and coloring books reveals the counterintuitive truth about incentives. Kids rewarded with gold stars lost interest in coloring when rewards were removed, while unrewarded children maintained their natural enthusiasm. This demonstrates how external incentives can destroy intrinsic motivation.
The Permanent Trap of Incentive Dependency
Once incentives are introduced, they become permanent expectations that cannot be removed. Eben explains that changing commission structures typically fails because employees view rewards as permanently theirs, and you lose the ability to test whether they would perform without incentives.
Real-World Examples of System Gaming
A manufacturing story illustrates how incentives create 'work the system' behavior. A supervisor compensated on production moved finished products back onto conveyor belts to get double-counted, causing inventory losses and multiple management firings before the scheme was discovered.
Building Teams Without Incentive Traps
The solution is finding star performers who think long-term rather than chasing immediate rewards. These people understand that consistent performance leads to fair compensation over time, while incentive-driven employees often become smooth talkers who over-promise and under-deliver.
Counterpoint
Claim: “Incentives and rewards motivate people to perform better”
Reframe: Incentives can destroy intrinsic motivation and create system-gaming behavior that hurts long-term performance
Psychological research with children showed that those rewarded with gold stars for coloring lost interest when rewards were removed, while unrewarded children maintained their natural interest
Claim: “You can always remove incentives if they're not working”
Reframe: Once incentives are introduced, you create permanent dependency and can never test natural motivation again
Eben explains that changing commission processes on salespeople doesn't go over well because 'once someone gets something it's theirs forever'
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