Behavioral Economics for Leaders

CHAPTER 40Don’t Incentivize Employees to Sabotage Colleagues: The Problems with Relative Performance Bonuses

If only one can win, he or she who comes in second is already the first loser. Many companies rely on relative pay, where the winners get a much bigger slice of the pie than the losers. A world‐famous episode from the sports world illustrates that such relative incentive schemes can result in sabotaging competitors—for businesses, such a reaction to incentive schemes can be quite costly.

The feature film I, Tonya Harding (2018) is based on the rivalry between two figure skaters, Tonya Harding and Nancy Kerrigan, who battled each other fiercely for the only U.S. starting position in the Olympic Winter Games at Lillehammer in Norway. Only the winner of the national championship would be allowed to start later in Lillehammer. So prior to the national championship, the ex‐hubby of Tonya Harding hired a hitman, who injured Nancy Kerrigan on her legs with an iron rod. Kerrigan wasn’t able to take part in the national championship. Harding won the championship and started in the Olympics, although it had already been publicized that the attack on Kerrigan had something to do with her. Instead of winning by being the better athlete, Harding won after her rival was injured deliberately.

This well‐known and sad episode is not an isolated incident, nor is it restricted to sports. If rewards for the victors are very high, damaging the opponent can be as helpful to winning as boosting ...