Reward Systems Teach People What Really Matters

People learn what an organisation values less from its statements than from what happens when rewards, status and scarce opportunities are allocated.

Organisations say many things about collaboration. They write values about teamwork, celebrate collective success and ask people to share information across boundaries. None of this is meaningless, but people learn what the organisation actually values elsewhere: from what happens when money, promotion, recognition, headcount and status are allocated. Steven Kerr described the problem half a century ago as rewarding A while hoping for B, and it has proved remarkably durable.

A reward system is therefore more than a way of distributing compensation. It teaches people which behaviours are rational. If promotion depends mainly on visible individual achievement, cooperation becomes something people provide while competing for a scarce outcome. If departments compete for budget, information that improves another department’s position carries a hidden cost. Nobody has to become selfish for this to shape behaviour. They only have to understand the system accurately.

This is why incentive design so often produces effects that look like character problems. A manager who protects headcount appears territorial, but if unused capacity reduces next year’s budget, the behaviour is predictable. A salesperson who will not help another region appears uncooperative, but if commission and recognition are tied narrowly to local results, cooperation has a price. An employee who chooses a safe target appears unambitious, but if a missed commitment is punished more heavily than a difficult attempt is rewarded, caution is being taught.

Fairness complicates the picture. Organisations individualise rewards because treating unequal contributions equally feels unjust, and that concern is real. Yet when every outcome is scarce and ranked, a colleague’s success reduces one’s own relative position, and the organisation asks people to behave like a team while rewarding them as competitors. Paying everyone the same is not the answer; different contributions should often produce different outcomes. The more useful question is which forms of success genuinely need to be scarce and which have been made scarce by habit. Praise, access to learning, visibility, interesting work and shared achievement need not be rationed like salary or rank.

Rewards also change the meaning of measures. Once a target enters an appraisal, people stop treating it as information and start treating it as a condition of personal success, so targets should be designed with the behaviour they will create in mind, not only the result they represent. The damage is greatest when expectations are unclear or introduced after the fact. People adapt to demanding objectives when the rules are stable; they become defensive when judged against standards they did not know existed, at which point the system stops guiding behaviour and starts testing their ability to guess what will matter later.

No formula resolves the tension between judgement, which introduces subjectivity, and mechanical rules, which invite gaming. The useful step is to acknowledge the trade-off rather than hide it behind a number that looks objective, and to examine reward structures as seriously as strategy. What behaviour becomes rational under this system? What information becomes advantageous to withhold? Whose success makes someone else worse off? What will a capable person optimise once they understand how the system really works?

People adapt to the incentives around them. That is not cynicism; it is how coordinated systems function. If cooperation matters strategically, the system has to make it a rational choice, rather than a moral request competing with the rewards that actually determine people’s futures.