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Incentives and Unintended Consequences

A heavy reliance on performance goals to motivate workers can create problems instead of encouraging performance.

(originally published by Booz & Company)

Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting

Lisa D. Ordóñez, Maurice E. Schweitzer, Adam D. Galinsky, and Max H. Bazerman

Harvard Business School, Working Paper No. 09-083

Date Published: 
February 2009

What if the current financial crisis were a result of poorly conceived goals? By paying mortgage brokers and loan originators on commission and then encouraging them to meet unrealistic sales goals, could banks have unwittingly precipitated their own demise? The authors of this paper believe this may be the case, and suggest that the tendency to focus too much on setting and attaining goals may be more common, and more dangerous, than we realize. Whether it’s quarterly revenue targets for sales executives or publishing quotas for tenure-seeking professors, performance goals are one of the most widely used tools for motivating employees. Citing examples such as the Enron Corporation scandal — which was set in motion when traders were remunerated for manipulating the energy markets to increase revenues for the firm — the authors argue compellingly that placing too much emphasis on performance goals may encourage unethical or unnecessarily risky behavior. They show that unattainable stretch goals can demoralize employees or encourage them to focus on one narrow part of their business at the expense of others. Although the authors agree that setting goals is an effective method to track achievement, they suggest that it be used in moderation.
Bottom Line:
Managers should avoid using goals as their sole tool for motivating employees, as it may lead some workers to adopt unethical tactics or take unnecessary risks.  


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