Business Operations

Commissions. Bonuses. Incentive plans. Vacations. Stock options. In their various forms, incentives have been a part of compensation plans for a very long time. There is an assumption that offering rewards (or conversely, punishment) will motivate employees to perform better.

But do they work?

If you’ve read or studied anything about motivation, you’ll know that intrinsic motivation (or self-motivation) is much more powerful and longer lasting than extrinsic motivation (rewards and punishment). In my business, we develop leaders to create a culture where intrinsic motivation can thrive. I think many leaders today understand the importance of self-motivation, but most leaders believe that extrinsic motivation (especially incentives) also works, so why not offer monetary incentives while trying to build self-motivation?

Because studies have shown that incentives have a negative effect on self-motivation and can cause unethical behavior.

To be clear, incentives can create temporary behavior change and compliance. But according to research and an article in Harvard Business Review by Alfie Kohn, incentives are not only ineffective at producing lasting change in attitudes and behavior, but they can be worse than doing nothing at all.

Despite short-term results, incentive programs can cause long-term harm for the following reasons:

It’s holiday bonus time! Did that bonus motivate you to work harder this past year?

Send your questions or comments to Mike@ OpXSolutionsllc.com • Pay is not a motivator. Lack of pay, or the elimination of an incentive, can de-motivate someone. But that doesn’t mean more pay creates more motivation, and numerous studies and surveys prove this. • Incentives hurt relationships. If the rewards cause competition, then someone wins and someone loses, and cooperation can suffer. Additionally, management and employee relationships can be hurt if employees hide problems and try to present themselves in a favorable light to maximize their rewards. • Incentives ignore root causes. In some cases, rewards effectively become a substitute for good leadership behaviors. Leaders might be less inclined to ensure workers have what they need to succeed as “pay for performance” essentially becomes the management system. • Incentives discourage risk-taking and creativity. Employees will focus on whatever metric is needed to get the reward and ignore other possible innovative solutions to improve performance. • Incentives undermine intrinsic motivation. The more management stresses financial benefits, the less employees are interested in the work itself. This happens because rewards are meant to control behavior, and the more employees experience being controlled, the less interested they will become in their job. A series of studies has shown that the larger the incentive, the more negatively the work is viewed.