The Safety Chicken
My store manager implemented an embarrassing (and happily short-lived) safety incentive: Employees caught violating safety procedure were immediately given a two-foot rubber chicken on a string to wear around their necks--in front of customers. To get rid of the chicken, an employee needed to catch another employee behaving "unsafely." The practice quickly descended into a game of hot potato, with employees chasing one another around the store in search of the slightest violation to rid themselves of the safety chicken.
Another contender would be the boss who made the employees use something for toilet paper that you have to read to believe. If you would like to read more, go to http://www.workingamerica.org/badboss/.