10 Myths About Employee Incentive Programs
Employee incentive programs are popular, if only because they are prolific. They range from industry standard sales commissions and other pay by performance jobs to more individual-specific benchmarks, but companies use them freely and generously. Though conventional wisdom tells us otherwise, many will argue that these programs are not just ineffective, they are detrimental. Before deciding to implement an incentive program for your small business, let's look at the top 10 myths about them.
1. It boosts morale.
One of the biggest reasons companies use employee incentive programs is to boost morale (and hoping that the boosted morale would in turn boost productivity). This is a shortcut, and one that doesn't solve the underlying problem. Morale usually not low due to a lack of incentives. Typically, morale is low for reasons like bad management. Offering gifts or cash in exchange for extra work doesn't address this.
Companies often relate morale with compensation. The adage that more money means more happiness is pervasive in corporate culture. These programs are often thought of as "throwing a bone" to their workers so that they'll be happy and productive. It might create a short burst of increased productivity, but because the actual cause of bad morale is never addressed, the problem creeps up again and again. Over time, the company might blame the workers for being greedy and unreasonable when they're using the wrong remedy in the first place.
2. It shows the company is generous.
You aren't fooling anyone. You're not doing this for your employees. You're doing this for yourself. It is a purely selfish deed. You are offering your employees something in return for something else. This isn't a gimme, a gift, or an act of kindness.
Management sometimes get confused when workers aren't more enthused or appreciative of the program. From the company's point of view, they're offering something extra, a bonus, an opportunity for more cash. From the workers' point of view, they're being asked to do more and work harder. The incentive is usually viewed as additional compensation for additional work. There's nothing generous about it.
3. It boosts productivity.
If your problem is productivity, consider whether you've provided all the tools and resources available for the productivity standards you are looking for. If you are too cheap to buy your workers new computers, but are frustrated that they're siting around idly while your tech guy has to diagnosis yet another problem on their computer, offering incentives to be more productive will simply cause more frustration. Your workers will see your demands as unreasonable since you haven't provided them with the tools to be productive in the first place.
A problem with productivity is usually caused by a flawed system. Inefficiencies often build up and cause bottlenecks in the workflow. Ask your workers if they have suggestions -- they're on the ground floor, experiencing it every day. They might know better than you.
4. It provides motivation.
If motivation is the goal, then an incentive program will provide it -- it will provide motivation to get the reward. But usually, that's not the kind of motivation companies are looking for.
The difference is that incentive programs provide extrinsic motivation where you were hoping for intrinsic motivation. Extrinsic motivation, offering rewards for action, provides an empty pursuit for the reward itself. Intrinsic motivation is what pushes people to do better. Morale, leadership, and vision contribute to intrinsic motivation. No incentive program can provide intrinsic motivation. The best you can hope for is extrinsic.
Understanding this limit of incentive programs will go a long way in crafting one with realistic expectations. While incentive programs will never provide you with things that result from intrinsic motivation, such as higher quality or creative expression, these programs can still be used to encourage very specific and quantifiable objectives.
5. Metrics are infallible.
When companies rely too much on metrics, a lot of the details get lost. Metrics are often a very small piece of the puzzle, but companies use them to translate all sorts of big picture theories. Quality gets lost in the race for quantity, because metrics are really only able to measure quantifiable things. When you use metrics as your standard, you are using a very small piece of the puzzle to define the entire picture.
When you use metrics to reward an outcome, you often shift your workers' focus from the big picture to a small part of it. Instead of doing their work better, they do a very specific and particular part of it better. While your intention was to produce a better picture, you end up with a perfect puzzle piece. It's a very inefficient way of raising overall quality.
6. The reward is most important.
Whether the reward is cash or just recognition, studies show that the type or amount of the reward makes little difference -- it's the incentive structure itself that defines the effect. Basically, spend less time on the details of the reward, and more time on constructing a valuable and effective program.
While nothing really compares to getting cold, hard cash, nonmonetary rewards offer employees some tax free benefits.
7. A little competition is good for the workplace.
Incentive programs that do more harm than good are usually the ones that involve competition. When you identify winners, there will always be those that feel as if they've lost. When you incentivize individual gain, you discourage teamwork. When you offer high stakes, pursuing creative freedom becomes too risky. By making them compete for limited spots, you devalue the variety of talent.
Friendly competition can be had if the reward is small and the task is inconsequential. Having sporting events outside of work, or offering awards for small things like "cleanest office" are fun and contributes to the overall work environment. But pitting them against each other on their work skills is a formula for disaster.
Use programs that are open-ended and inclusive where any number of workers can meet the goals and no one loses because another won.
8. Incentive programs give employees a sense of ownership in the success of the company.
While it's true that recognition and compensation contributes to their sense of ownership in the company, incentive programs specifically don't do this. There's a fine line between an employee's sense of worth and value to the company when he or she receives unexpected recognition and sincere appreciation and negating that completely with incentive programs that offer compensation in exchange for work. Having management that provides solid leadership, positive feedback, and proper guidance can provide a sense of ownership that no amount of compensation can.
Profit-sharing programs are often instituted as a way to get that sense of loyalty to the company. However, as an incentive program it's difficult to measure success and effectiveness. So many factors contributes to a company's bottom line that a profit-sharing program may focus disproportionally on some factors while ignoring others. It's the program that provides the least amount of control over specific objectives, and offers many ways for employees to make out on the hard work of others.
9. Our employees won't try to game the system -- we have a good relationship and we trust each other.
Employees don't game the system because they are spiteful or disrespectful. They're only following your lead by placing importance on particular metrics that you've asked them to improve. When too much emphasize is placed on incentive programs and the rewards that they offer, the collective focus turns to it. Employees then shift their energy into getting the reward (because that's what extrinsic motivation does). The gaming is inevitable. It might not affect the numbers directly, but it makes the employees value the numbers disproportionally.
10. If an incentive program isn't working, it just needs a few tweaks to make it perfect.
When companies rely on incentive programs for results, they are assuming that their employees simply lack the right motivation needed for them to do their job fully. When incentive programs don't work, they rarely consider that perhaps it's not incentive the workers need, but something much deeper.
Ask yourself if the solution to the problem doesn't lie on your workers, but with your business structure. Is there one particular manager who is not able to get along with his or her team? Have you really listened to the comments and suggestions given by your employees?