Caveat Emptor

Great Joel article on the "sins of commission"--the anti-customer (and sometimes anti-employer) behavior that can be created by too-clever financial incentives.

I also really like Joel's solution:

...we were worried that the same thing would happen if we paid salespeople on commission. I had a recurring nightmare of salespeople gone crazy, going to ridiculous lengths to make sales and ruining Fog Creek's hard-earned reputation as a friendly, win-win kind of company.

But we soon realized that commissions weren't the only management tool at our disposal. We simply established as a rule the idea that gaming the incentive plan was wrong and unacceptable. Employees generally follow the rules you give them -- and if they don't, you can discipline them or, in extreme cases, dismiss them. The problem with most incentive systems is not that they are too complicated -- it's that they don't explicitly forbid the kind of shenanigans that will inevitably make them unsuccessful.

I think this is a great, common-sense solution. Probably doesn't scale as well in big companies, but it is a great starting point.