THE late Charlie Munger said, 'If you have a dumb incentive system, you get dumb outcomes.' Bartleby of The Economist cites Stephen Meier of Columbia Business School, who argued in the book 'The Employee Advantage,' that people are motivated by many other things than just monetary rewards. Rewarding people for doing things they would do anyway can easily backfire.

The idea behind rewards or penalty systems is to align individual actions with broader goals. However, poorly designed incentive systems often lead to unintended consequences that undermine their effectiveness and create additional challenges. Understanding these dynamics is critical for designing systems that achieve their intended purpose while minimizing negative outcomes.