The downside of awards programs is gaming the system

Recent evidence from a research study in an industrial laundry business suggests that awards programs — which intuitively seem like a low-cost way to reward certain behaviors — may backfire in some surprising ways:

Timothy Gubler, Ian Larkin, and Lamar Pierce, The Dirty Laundry of Employee Award Programs: Evidence from the Field
Many scholars and practitioners have recently argued that corporate awards are a “free” way to motivate employees. We use field data from an attendance award program implemented at one of five industrial laundry plants to show that awards can carry significant spillover costs and may be less effective at motivating employees than the literature suggests. Our quasi-experimental setting shows that two types of unintended consequences limit gains from the reward program. First, employees strategically game the program, improving timeliness only when eligible for the award, and call in sick to retain eligibility. Second, employees with perfect pre-program attendance or high productivity suffered a 6-8% productivity decrease after program introduction, suggesting they were demotivated by awards for good behavior they already exhibited. Overall, our results suggest the award program decreased plant productivity by 1.4%, and that positive effects from awards are accompanied by more complex employee responses that limit program effectiveness.

I will comment on the counterintuitive results in reverse order.
Those that have been attending work regularly — or whatever behavior you are rewarding — are reasonable to be upset when they are not recognized for that past behavior. Management would be better served to identify the top ten employees in attendance in the past year at the outset of any program.
This reminds me of the notion of positive deviance (see How ‘positive deviants’ help a culture change itself’), where instead of try to explicitly direct how people can make cultural changes you search for people already exhibiting the behaviors that are correlated with the change. For example, as in the earlier post on ‘positive deviants’, I described efforts to minimize the transmission of MRSA — an antibiotic-resistant staph infection — as a Pennsylvania hospital. Instead of rewarding people for wiping their hands the most, or touching people the least, they found people who were already showing those behaviors, and identified them as exemplars to the rest of the hospital community. And then management stepped back and let the community itself figure out how to train others in those techniques. There was no explicit reward system.
And regarding the gaming, people will find ways to beat systems. When I was in grad school, a computer science instructor devised a program that would count the lines of comments in student’s programs, and assign part of the grade based on that measure. A smart (who shall not be named) group of students modified a programming language compiler to generate comments, like

// this loop iterates over the elements of the ‘foo’ array
// assigning the result of a call for the ‘bar’ function
// passing parameter  ‘i’
for (i=0;i++;i<10) {foo[i] = bar(i);};

and we never told the instructor. We all got A’s.
That’s why I am not happy about the rise of explicit employee reward systems, or gamification.