Making Across-the-Board Incentives Work

It’s common practice in American business to offer incentives to all employees. The hope is that across-the-board rewards, whether in the form of profit sharing, employee stock ownership, or bonuses, will inspire people to work harder toward a company’s goals. In practice, though, companywide incentives often produce disappointing results in big companies, at least in part because of what economists call the “free rider” problem. In any large group, individuals perceive that extra effort on their part is unlikely to make much of a difference in overall performance—and that whatever reward is earned by the population as a whole will accrue to them regardless.