Note: This post original appeared on August 28, 2012 as an article on the International Customer Management Institute (ICMI) website. I'm reposting it in honor of my upcoming session at ICMI's 2012 Call Center Demo & Conference. While it focuses on call centers, I believe the lessons are universal.

Call center managers often turn to a variety of incentives and rewards to encourage good performance. Examples include games with prizes awarded to the winning teams, cash bonuses paid to reps who meet certain performance targets, or gift cards given to recognize a special achievement such as a perfect QA score. Before implementing a similar program in your call center, you may want to examine evidence that suggests incentives and rewards can actually cause poor performance if used incorrectly.

Here are three examples of problems that can be caused by incentives or rewards, and the strategies to help keep them in check:

1. Problem: Reduced Motivation
Psychologist Edward Deci conducted an experiment in 1971 where subjects were asked to solve various puzzles with a set of blocks called a Soma cube. Participants were given some free time between activities and Deci noticed that many people continued to practice solving the puzzles on their own. When Deci announced a cash prize for each puzzle completed, participants spent even more of their free time practicing. However, when Deci stopped offering the reward, participants correspondingly stopped spending their free time working on the puzzles.

The lesson from Deci’s experiment is that an external incentive can reduce internal motivation. Let’s say you introduce a contest where agent can earn a gift card for meeting their schedule adherence goal for the week. Chances are you’ll see schedule adherence go up over the next week as people try to earn the prize.

But what about the following week when the contest is over? Schedule adherence will probably get worse, perhaps even sinking below pre-contest levels. You can keep running the same contest each week, but those gift cards can start getting expensive.

Strategy: Ask for employee input. Rather than holding a contest to promote better schedule adherence, engage employees in honest and open dialogue to identify obstacles that prevent them from doing better. You’ll likely gain new ideas for improving schedule adherence while earning your employees’ commitment to implement the solutions they helped create.

2. Problem: Diverted Attention
Another side effect of using incentives is they can divert your agents’ attention away from the desired performance. Perhaps your call center offers employees a cash bonus if they achieve the target score on a customer satisfaction survey. Your goal may be improving customer satisfaction, but the incentive will focus employees on earning good survey scores.

It’s a small, but important difference. Employees may offer happy customers extra encouragement to complete a post-call survey but not mention the survey to upset customers. They may try to blame problems on other employees or departments so unhappy customers will still give them high individual marks. They might even be too quick to transfer difficult calls to other departments to avoid a negative survey score. All of these actions can skew the survey results while helping employees earn their bonus.

Strategy: Enroll employees in a collective cause. Rather than incentivizing survey scores, set a team goal for customer satisfaction. Share survey results in team meetings and one-on-one discussions and solicit employee ideas for improving results. Asking for employees to contribute to a team effort creates a powerful connection to internal motivation.

3. Problem: Unethical Behavior
Incentives can also lead to bad behavior if the reward far outweighs the risk. For example, a software company might hold a contest with its technical support team to see who can close the most trouble tickets within the time specified in their service level agreement (SLA). If the prize for winning the contest is valuable enough, reps may be motivated to close tickets before the problem is fully resolved. This tactic may result in meeting the SLA, but it will also undoubtedly frustrate many customers and cause a spike in trouble tickets.

Strategy: Recognize, rather than incentivize, great performance. In his best-selling book, Drive, author Daniel Pink demonstrates that rewards can be more effective when they are unexpectedly given after the performance occurs. Rather than holding a contest to see who can close trouble tickets the fastest, you can periodically recognize reps for going above and beyond the call of duty to fix a problem for a customer. This sends the message that their contributions are valued without diverting their attention away from their job.

Conclusion
Studies have consistently shown that managers believe employees are much more motivated by external incentives than is actually the case. As you can see from the above examples, tapping into your employees’ own internal motivation is often a better way to improve performance.

Jeff Toister is the author of Service Failure: The Real Reasons Employees Struggle with Customer Service and What You Can Do About It. The book is scheduled to be released on November 1.