Designing smarter reward systems that boost teams, not break them
The Cobra Effect: When Incentives Breed the Very Problem They Meant to Solve
In colonial India, British officials in Delhi were alarmed by a surge in deadly cobra sightings. The solution? Offer a bounty for every dead cobra brought in.
At first, it worked. Snakes were killed and rewards paid. But then the scheme turned toxic.
Enterprising locals began breeding cobras in secret to claim the rewards. When authorities caught on and cancelled the scheme, the breeders, now with worthless serpents, simply released them.
The result? More cobras than before.
This cautionary tale, now known as The Cobra Effect, is a classic example of how well-meaning incentives can spiral into unintended, damaging outcomes.
Finance, Fraud and False Targets: The High Stakes of Bonus Design
History is full of examples where flawed incentives have done more harm than good:
Banking Scandals: From Lloyds to Wells Fargo, schemes based on short-term targets led to mis-selling, inflated risk and long-term reputational damage.
- Lesson: If you measure the wrong thing, people will optimise for it and ignore what really matters.
Let Battle Commence: When Bonuses Divide, Not Unite
Individual reward schemes often pit peers against each other, even when collaboration is essential.
In one legal business, a newly promoted leader was warned by a peer: “Let battle commence.”
What should have been a step forward became a turf war. Instead of uniting under a shared goal, staff hoarded credit, withheld knowledge and protected silos.
- Lesson: Bonus structures must support teamwork—not sabotage it.
Paying to Demotivate: When Cash Kills Commitment
It’s counterintuitive, but science supports it. Research from Edward Deci and Richard Ryan shows that over-rewarding people for tasks they already enjoy can reduce intrinsic motivation. This is known as the overjustification effect.
- Lesson: Don’t kill passion with a pay cheque. Sometimes, less is more.
Smart Incentives: Design with the End in Mind
Poor incentives reward activity. Good ones reward value. Here’s how to design better systems:
| The Challenge | The Smarter Approach |
| Rewarding short-term outcomes | Balance incentives with quality, ethics and customer impact |
| Encouraging effort but harming teamwork | Introduce team-based rewards with shared KPIs and peer review |
| Ignoring long-term risks | Align incentives with 3–5 year goals and sustainability metrics |
| Unclear or shifting goalposts | Use transparent rules and review them quarterly |
Before You Launch a Bonus Scheme, Ask:
- Are we rewarding outcomes or just effort?
- Could this drive the wrong behaviour?
- Have we modelled worst-case scenarios?
- Does this scheme build trust—or erode it?
- Have we asked the team for input?
Final Thought: Learn from the Cobra
Incentives aren’t just about money. They shape culture, behaviour, and long-term outcomes.
If you design them well, they empower people and align action with purpose. If you don’t, they backfire and you could end up with more problems than you started with.
At UK Business Advisors, we help SMEs create reward systems that work. Get in touch to explore how the right bonus design can unlock lasting value for your people, your culture and your business.