What Recent Research Says about Incentive Efficacy

I caught an interesting bit of research out of the UK recently, which considered the relative impact of different types of incentive programs on employee attitudes. Of the three subjects to analysis, performance-based pay seemed to emerge as a front-runner. It demonstrated positive relationships with satisfaction, commitment, and trust in management.

Findings on the remaining two types – profit-sharing and stock ownership plans – were mixed. Profit-sharing plans could be beneficial, primarily in terms of reported employee well-being, but only when participation levels in the program are high. Stock ownership appeared to be negatively related to job satisfaction, potentially attributable to perceived unfairness by certain employees.

Based on these results, some decision-makers might rush to rebalance their portfolios. Unfortunately, solutions are never quite that straightforward, especially where human behavior is involved. A note of caution from the same research introduced the concept of “work intensification,” particularly as a side effect of performance-related pay.

Work intensification captures the perception that even high levels of effort are insufficient in addressing work demands. Prior research has discussed the concept as a consequence of incentives perceived as overly controlling or exploitative, typically in pursuit of greater organizational productivity at the expense of employee well-being.

The authors caution it’s possible that performance-based incentives can backfire, with work intensification obscuring the positive effects on employee attitudes. So if not performance-based pay, then what?

A strong alternative is social recognition. In place of incentives, which take a “if…then” approach, I have written that recognition follows a “now that” formulation. Recognition and rewards are unexpected and follow the desired behavior; for example, “now that” an employee has demonstrated a core value, a peer recognizes that performance and its value to the team and the organization.

Two points are of note as they relate to the research cited above. First, the absence of expectation around the moment of recognition prevent the development of the mindset toward work intensification. It is also much less likely that employees attempt to game the rules of the incentive program. Because social recognition is performance-based, the positive benefits are possible without the potential detriments.

The second point is the source of recognition and involvement in the program. A recognition program open to all peers and colleagues takes advantage of the finding above that wide participation and perceptions of fairness can lead to positive results. Recognition that comes from peers can carry more value and a deeper sense of connection. It captures a shared striving toward performance rather than striving to simply meet the criteria for an incentive.

What types of incentives does your organization pursue and with what outcomes?

As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of “The Power of Thanks” and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

This post originally appeared on Compensation Cafe
Author: Derek Irvine