Firms typically design incentive systems to motivate employees and advance firm objectives, including productivity (i.e., maximizing output) and efficiency (i.e., minimizing input). However, there remains little empirical research on the potential psychological effects of adopting a productivity versus efficiency focus on employee risk perceptions and decision-making. To address this important gap, we examine how these different incentive foci affect employee target setting under participative budgets. We predict and find that employees perceive efficiency incentives as riskier than productivity incentives, leading to lower target setting. Moreover, consistent with our theory, this effect disappears in the absence of outcome uncertainty. We also find employees are less likely to achieve their target and have higher error rates under efficiency incentives, despite setting easier targets. Overall, our findings suggest that efficiency incentives, relative to productivity incentives, can have detrimental effects on target setting and subsequent performance in participative budgeting settings. Data Availability: Contact the authors.