What Leaders Should Know About Employee Incentives
How to improve employee performance is a question every leader eventually faces. Employee motivation is influenced by many factors, including workplace culture, opportunities for growth, meaningful work, recognition, and compensation.
One approach many organizations consider is offering employee incentives. The logic seems straightforward: reward desired behavior and you'll get more of it.
Yet if you read the research on employee incentives, you'll find conflicting conclusions. Some studies suggest incentives improve performance. Others indicate they have little impact. Still others suggest that certain incentives can actually reduce motivation or hamper creativity. The conflicting results largely reflect differences in the work, incentives, and outcomes being studied.
What is clear is that incentives can influence behavior. Whether they are an effective tool for your organization depends on several factors, including the behavior you are trying to encourage and how the incentive is structured.
It's important to be clear about what incentives cannot do. They cannot address underlying organizational dysfunction. No incentive program can serve as a shortcut around issues such as:
Inadequate compensation
Unsafe working conditions
Toxic workplace culture
Poor management practices
Lack of training or resources
Unclear expectations and accountability
When these conditions exist, incentives will only address symptoms rather than root causes.
If you're considering implementing an incentive program, the first and most important question to ask is:
What behavior am I trying to encourage and what unintended consequences might this incentive create?
A customer service incentive based solely on call length may encourage employees to end calls quickly rather than fully resolve customer concerns. A safety incentive that rewards accident-free months may actually make the workplace less safe if employees become reluctant to report incidents for fear of costing the team its reward.
Most importantly, leaders must be mindful of the role that incentives can have in shaping culture. Every incentive communicates what the company values. What you reward is what people notice. What people notice is what they repeat. And what gets repeated becomes culture.
Research published by the International Society for Performance Improvement suggests that tangible incentives, (cash rewards and awards) are most likely to succeed when:
Performance in the targeted area is currently falling short of expectations.
Employees have the skills and resources needed to succeed.
Success can be clearly measured.
The goal is realistic and achievable.
Chasing the incentive doesn’t come at the expense of other important work.
These conditions set the stage for success, but they are only part of the equation. How incentives are implemented matters just as much as the incentive itself. In our next blog, we'll explore the dos and don'ts of creating effective employee incentive programs.
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