Do incentives really boost performance?
A position is opening in your company and you want to attract and ultimately hire the best candidate. You begin to pen your job advertisement. It highlights a company going places. It glamorises an envious role. It states a generous salary. And it dangles a carrot oozing with incentives. Yep, those bonus incentives will have the best of the best, and probably a stampede of other less desirable candidates, flocking to your front door. Well…maybe.
Everyone loves to be rewarded for their efforts so it makes sense that when you offer individual employees bonuses to achieve great results, performance will improve. Umm…sorry to tell you this, but you’re very, very wrong! This is one area of business that has been studied to death. And the evidence continues to repeat itself. Bonuses do not improve production over the long term. Bonuses do incite envy, resentment and employee turnover. Bonuses when removed do not result in a drop in performance, or the bottom line for that matter.
Conventional thinking tells us that people will work harder and smarter in order to increase their earnings. Yet a study by McKinsey consultants determined that shareholder returns were no higher when management had incentive plans. So are companies unnecessarily creating bonus schemes? And paying them? If incentives in the main do not boost performance, we have to ask ourselves if there is something wrong with our bonus structure and if we should be targeting teams, or the company as a whole, as opposed to individuals.
When structuring a bonus scheme, you need to consider what performance measures you will put in place to ascertain achievement of those goals set. The criterion needs to be documented and clear to all. Obviously the goal cannot be too easy and should be able to be adjusted overtime to reflect real time industry movement. You need to determine the value of the bonus too, set a time parameter for achievement and when the bonus will be paid. I’ve seen employers linger in paying out employees for achievement of their KPI’s and the result has been catastrophic with staff abandoning their incentive schemes. And what if the scheme fails to action positive change? What was I saying earlier? Oh yeah, bonus schemes do not work!
Often paying out a bonus, whether it is in the form of cash, tickets to a show or even an all-expenses paid holiday, you risk inciting jealousy among the troops. While bonuses aim to condition behaviours such as improved productivity, increased motivation and greater work effort, they often incite unethical actions such as cheating, shortcutting and corrupt interactions between competing co-workers. It is even worse when employees who don’t deserve a reward are granted a benefit. In this instance you can demotivate employees who eventually become disenchanted and leave.
So how should we be motivation our workforce? Research based on feedback from 1,091 managers and 1,018 employees, conducted by the Institute of Leadership and Management, found that emotional factors such as job enjoyment, getting along with colleagues and feeling fairly treated are the most effective ways of motivating employees to achieve better performance. Only 13 per cent of those surveyed felt that the prospect of receiving a bonus or other financial incentive motivated them to work harder. A fairly compelling statistic. Clearly financial incentives are extrinsic motivators and have a limited effect. And if not escalated, will people revert back to old behaviours?
Ranking employees against each other by forcing them to compete for rewards will likely result in co-workers seeing each other as obstacles to their own success. It’s a sure fire way to destroy collaboration and quality organisational practices. Designing jobs that create opportunity, develops skills and builds meaningful interpersonal connections will incite purpose. The McKinsey survey of over 20,000 workers around the world, analysing 50 major companies and conducting scores of experiments, concluded that a high performing work culture that emphasised play, purpose and potential for its employees and minimised financial reward were the most motivational for employees.
So how will you be promoting the next position in your organisation? Will you desert the bonus scheme incentives and instead promote the intrinsic values of your organisation? People do leave highly competitive companies and higher incomes for more progressive and socially responsibility organisations. They do so because they want to represent a company whose values align with their own, not those who constantly ask them to compete for status. With this in mind, how will you be attracting and retaining your next employee?
