Inappropriate incentive pay

Incentive plans should include both short- and long-term goals to ensure employees receive ongoing performance feedback and continuous positive reinforcement for exhibiting the behaviors you want to see.

how to structure incentive plans that work

Deci and Richard M. Swarthmore College psychology professor Barry Schwartz has conceded that behavior theory may seem to provide us with a useful way of describing what goes on in U.

why incentive plans cannot work

Our concern is about the unintended consequences of financial incentives. Quote Bonuses and stock options often improve performance.

Problems with incentive programs

If we go to work thinking about the possibility of getting a bonus, we come to feel that our work is not self-directed. But companies also need to think through the impact of the bonus system for those at or close to the top of the org chart. Rather, incentives merely—and temporarily—change what we do. Is long-term growth being sacrificed to maximize short-term return? What is far more surprising is that rewards, like punishment, may actually undermine the intrinsic motivation that results in optimal performance. The more a manager stresses what an employee can earn for good work, the less interested that employee will be in the work itself. Similarly, Phyllis Siegel at Rutgers and Donald Hambrick at Penn State have shown that high-technology firms with greater pay inequality in their top management teams have lower average market-to-book value and shareholder returns. When designed properly and intentionally, incentive programs can increase performance and drive organizational success. However, the research shows that such payment doesn't always pan out like companies expect. Often they have found slight or even negative correlations between pay and performance. It can range from innocuous rewards like discounts, gift certificates and company-branded gifts to more questionable rewards like cash and benefits. To assess results across multiple studies, researchers have used a technique called meta-analysis. Quote Bonuses and stock options often improve performance.

Rewards ignore the causes behind problems. In order to solve problems in the work-place, managers must understand what caused them. The more a manager stresses what an employee can earn for good work, the less interested that employee will be in the work itself.

And none of those five showed any benefits from incentives. Whenever people are encouraged to think about what they will get for engaging in a task, they become less inclined to take risks or explore possibilities, to play hunches or to consider incidental stimuli.

For instance, employees may be tempted to conceal any problems they might be having and present themselves as infinitely competent to the manager in control of the money. Telling your staff you value teamwork, then structuring your incentive plan solely on individual achievement, sends mixed messages.

But most of these data could support a different conclusion, one that reverses the causal arrow. In time, this view came to be known as financialization, and maximizing shareholder value became the reigning mantra.

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Incentive Pay Won't Work for Everyone