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Incentive-based contracts may be sending signals of distrust, and could unintentionally undermine the culture of professionalism and honesty in an organisation, a new study suggests.

Offering incentive-based pay structures to encourage performance can be akin to telling an employee "we don't trust you", according to University of Technology Sydney Associate Professor Gordon Menzies and Professor Isa Hafalir, and Oxford University Associate Professor Thomas Simpson.

Their research paper, published in the Journal of Business Ethics, argues that incentive-based contracts essentially assume employees are primarily motivated by self-interest, and won't be motivated to act in their employer's interests unless incentivised to do so.

The researchers note that when employees feel they aren't trusted it can have the unintended consequence of creating a "downward spiral", where they need even more incentives to perform...