1. What do you think were the biggest factors in the failure of the incentive program at HP?

2. Why might employees prefer to have only fixed pay and no incentive pay if the incentive pay system meant that they could earn more money?

3. What would you recommend that HP try instead of pay for performance to accomplish its initial goals of increasing productivity and focusing employees on team rather than individual performance?

Motivation Through Incentives at Hewlett-Packard In its early days Hewlett-Packard did not regard money as a motivator and had no bonus system. HP is a high-commitment workplace that empowers employees and offers them challenging careers. When 13 managers asked to adopt a pay for performance program tying 10 to 20 percent of their employees’ pay to their team’s performance to increase productivity and focus employees on team rather than individual performance, the organization agreed. Managers set a series of production goals for several teams, and based their members’ pay on three levels of rewards. Managers believed that 90 percent of the teams could reach Level 1 goals, 50 percent would reach Level 2, and only 10 to 15 percent could reach the highest Level 3 goals.42

But the managers were wrong. For the first six months, almost all of the teams reached the two highest reward levels. Because this required paying employees more than expected, managers raised the goal levels. This new focus on high performance and rewards led high performing teams to prevent less experienced workers from joining them. Less employee movement across teams meant that less knowledge was shared or transferred among employees.43

As more workers complained and employees began to focus on doing what they needed to do to earn the rewards rather than on the many other things that would help the company, managers tried redesigning the system. Troubles continued to mount for three years until HP scrapped the entire experiment. When it did, relieved workers threw management a party.44 As one expert said, “The HP experience shows the more you focus people on monetary incentives, the more you use money as a goal and a driver, the more dysfunction you have. We’ve seen the same thing on Wall Street.”45.