Is Competition Motivating?

My husband has been having some challenges at work lately. I won't go into all the details (because they make me too angry), but it's been making me think about using competition to motivate.

Company's Desire:
To have more Motivated, Efficient, Professional Employees who work together to make an enjoyable experience for the customer.
Method:
Give tests to rank the employees and punish those who are on the bottom. The employee with the lowest rank at the end of the year will be demoted. Punish employees who make any mistakes on the job. Promote supervisors who properly report any mistakes.
Result:
Motivated: Employees dread coming to work. Efficient: They are nervous about making mistakes on the job and so they make more than they normally would otherwise. Professional: Employees are no longer concerned about being professional because they know they will not be treated as professionals. Team Spirit: Employees are now hoping other employees will make mistakes and not pass tests.

The methods completely undermine the objective. And if this is going to be a competition, shouldn't it be a competition for first place as opposed to just a race not to be last? So let's look at schools.

Government's Desire:
To produce college graduates who will contribute to the community as well as make Taiwan a strong presence in the world.
High School Methods: 
Create incentives where students who rank in the top five get scholarships to continue at the school, tuition free. Teachers post the students' test scores for all to see. Students who are truly competitors are given special attention from the teachers while other students are neglected or put into a separate class (true story).
Result:
Some students who are college graduates but spent their time in high school believing that they had value only when they did better than others. Other students who didn't go to college and believe this is an indication that they weren't "good enough". These beliefs are taken into the workforce where it undermines their ability to contribute to a community team and make Taiwan a strong presence in the world.

The motivation undermines the motive.

Now I'm not saying that there shouldn't ever be competition. I love a good competition as much as the next person does. My issue happens when we attach a person's value to whether or not he or she wins. That's why kids (and adults) freak out when they lose a game. They believe, whether they realize it or not, that their value as a person depends on winning.
And when you have no value, you have no motivation.

So I will continue competing against time and against myself. My question for you is: How do you stop yourself from attaching your value as a person to the results of your "competitions"?