Someone recently asked me to give them a general overview of incentives. Never-mind the cliff-notes request format, we simply over-complicate this stuff.
Understanding incentive compensation is simple, and is largely human nature:
1. That which is rewarded is repeated,
2. You don’t get what you want, hope for, manage to, or request — you get what you pay for (as a tenet of compensation, not necessarily a life philosophy), and
3. Simplicity wins.
Exception, contrarian arguments like you mention are just that, and based more on opinion than empirical evidence.
Well crafted incentive schemes will generally work when we can show that:
1. Working harder (bigger, better, stronger, faster) will improve my job performance, and
2. My improved performance will create rewards, perhaps an increase in salary or valued benefits, and
3. I value these rewards.
(oft-paraphrased from Vroom, though not sure his was original)
Again, simplicity wins…
