I'm trying to read a bit further around the area of incentives and how they affect behaviour, so I picked up an old copy of The Hidden Costs of Reward, which was an early compilation of research on the subject. (Once again this has rocketed up in price on Amazon since I got my copy).
There is a stack of interesting stuff in here, including some useful theoretical pieces. But as usual I find myself drawn to some of the experimental findings which include -
Incentives inhibit incidental learning - ie they focus you more on the specific task to the exclusion of other information. Clearly this can be a good thing.
On a related point, they lead people to focus on both on the easiest solution (again this is obviously usually, but not always, good) to a given task, and to choose easier tasks.
Again related, they seem to inhibit creativity in problem solving.
Incentives can be effective at improving performance on 'algorithmic' tasks, but not 'heuristic' ones.
All of this, to me, points in the direction that financial incentives might have a positive effect on performance on the shopfloor, though even this probably needs hedging. But there seems to be a theoretical and empirical black hole if we are seeking to justify their use in the boardroom. Despite this, since the financial crisis hit, all the work on remuneration 'reform' seems to have focused on performance measurement issues. Surely this is a major missed opportunity?