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Why salary bonus and other incentives fail to meet their objectives

26 replies on 2 pages. Most recent reply: Jul 31, 2005 8:47 AM by Laphroaig

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Dale Asberry

Posts: 161
Nickname: bozomind
Registered: Mar, 2004

Why salary bonus and other incentives fail to meet their objectives (View in Weblogs)
Posted: May 12, 2004 1:08 PM
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Summary
This article was originally conceived to show that incentive programs have failed due to inherent management and personnel problems. The work environments where reward programs are typically used are also very hierarchical and politically charged. No matter how many carrots are put out there, employees can’t get past the day-to-day atmosphere.
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"It is better not to make merit a matter of reward lest people conspire and contend."
- Lao-tzu

"Who would have thought that play could be turned into work by rewarding people for doing what they like to do?"
- Rosemarie Anderson

Introduction

This article was originally conceived to show that incentive programs have failed due to inherent management and personnel problems. The work environments where reward programs are typically used are also very hierarchical and politically charged. No matter how many carrots are put out there, employees can’t get past the day-to-day atmosphere.

In the process of researching books covering the topic, all I could seem to find were books on how to implement them! After thinking about it for a while, this seemed very strange. Where were the books that showed the cold hard facts on the success of incentive programs?

SixSeconds.org, an organization focusing on emotional intelligence (EQ, for short), suggests that when "choosing ourselves" we should "engage intrinsic motivation".

In addition to motivating ourselves, it is important to learn how to motivate others. There are many ways to do so; the most obvious are "extrinsic" motivations. For example, "If you carry my bag, I'll give you a candy bar," is a simple example of extrinsic motivation -- it is a bribe or a type of commercial interaction. Quite useful at times -- but it doesn't last. Building lasting motivation requires a more complex strategy; one that employs both intrinsic and extrinsic motivation (ideally 60-80% of the focus is on intrinsic motivation).

I also don't quite buy the idea that bribes work, so I posted a question to the Yahoo Groups EQLeadership and EQThesis lists asking if anyone knew of solid research in this area. A list mediator, Josh Friedman, pointed me to the book Punished by Rewards: The Trouble with Gold Stars, Incentive Plan$, A’s, Praise, and Other Bribes by Alfie Kohn.

What is the Problem with Incentives?

Researchers have performed hundreds of studies regarding incentives and, unlike most psychological research, the results are overwhelmingly conclusive: rewards actually interfere with motivation and lower morale, quality, and productivity. So why are there so many books pushing incentive programs? Frankly, we don’t want (or know how) to make the tough effort or dynamic thinking that it takes to encourage others to self-motivate.

Why are managers inclined to use rewards? Managers use them to get people to do their jobs. "Douglas McGregor (refers to this) as Theory X: people basically don't like to work and therefore need to be controlled and coerced ... if we expect them to get anything done."

In other words, 'motivating' people usually means 'making them do what you want.' It is coercive and controlling, and people respond by rebelling. The rebellion is either direct - the employee responds by 'making a scene', or (more likely) indirect - the employee begins a campaign to undermine the manager. And there begins the endless loop of control and rebellion. The manager and the employee are so busy with politics that they have little time to focus on the task at hand. It is not surprising that neither party recognizes what’s happening… the feedback loop is rarely obvious: the employee and manager are both good at not getting caught!

How Can We Get Beyond Rewards at Work?

In truth, the best a manager can do "is set up certain conditions that will maximize the probability of (the employee) developing an interest … and remove the conditions that (constrain)." Mr. Kohn suggests that to do this, managers need to "attend to three fundamental factors:" collaboration, content, and choice. But to focus on "the three C's", managers must first remove their impediments.

Firstly, get rid of all rewards. Specifically, get rid of bonuses and at-risk pay. This will give employees the freedom to stop worrying about money at work. If people are paid equitably, they won’t be worrying about their personal life at work nor will they need to be job hunting. Also, forego all "recognition" ceremonies, plaques, and certificates. Recognition sets people at each other’s throats and interferes with the first "C", collaboration. Removing these visible tokens does not, however, relieve managers from providing feedback. If anything, it suggests that managers must be observing and communicating with employees constantly.

Secondly, get rid of employee evaluations. "W. Edwards Deming ... has called the system by which merit is appraised and rewarded 'the most powerful inhibitor to quality and productivity in the Western world.' He adds that it 'nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and ... leaves people bitter.'" In addition, "punitive strategies, such as holding out the possibility of termination or demotion for inadequate performance, are counterproductive in the extreme -- not to mention unpleasant, disrespectful, and in general, an intrinsically offensive way to deal with other human beings... punishment typically leads not to improvement but to defiance, defensiveness, and rage." Again, the optimal approach a manager can take is to observe and communicate in an on-going basis.

Finally, "create the conditions for authentic (intrinsic) motivation." In other words, the best thing a manager can do is treat employees with respect. According to the research anthology Paying for Productivity: A Look at the Evidence, "Changing the way workers are treated may boost productivity more than changing the way they are paid." To begin with, managers should first 'observe'. Look for problems that are impeding their performance and work with them to solve the problems. Also, managers should 'listen'. They should take the time to hear what an employee is saying from the employee's perspective. In addition, managers should provide plenty of feedback. People need a non-confrontational approach so that they can internalize the things they are doing well, as well as, focus on the things they can improve. Ultimately, managers should take a moment to think about the consequences of their behavior. Is the behavior controlling, or does it improve collaboration, content, or choice for the employee?

Collaboration

"On most tasks, especially those that involve some degree of complexity and require some degree of ingenuity, people are able to do a better job in well-functioning groups than they can on their own. They are also more likely to be excited about their work. Both effects are due to the exchange of talent and resources that occurs as a result of cooperation - and also to the emotional sustenance provided by emotional support. People will typically be more enthusiastic where they feel a sense of belonging and see themselves as part of a community than they will in a workplace in which each person is left to his own devices."

Content

"What is a good job? … It offers a chance to engage in meaningful work. (A good job) isn’t just that the process of working provides enjoyment, but that the product being made (or the service provided) seems worthwhile and important. … The question is not just 'Are we having fun yet?' but 'Are we making a difference?'" Even jobs that don’t seem interesting can be made palatable if offered "a meaningful rationale for doing it anyway (in terms of its indirect effects, for example), and giving people as much choice as possible about how they perform the task."

Choice

"We are most likely to become enthusiastic about what we are doing … when we are free to make decisions about the way we carry out a task. The loss of autonomy entailed by the use of rewards or punishments helps explain why they sap our (personal) motivation." One researcher, Peter Scholtes, has observed, "People don't resist change, they resist being changed." Critics have argued that this is simply managing by inaction. "The truth of the matter is that creating structures that support worker autonomy is itself a challenging job."

Conclusion

The quote from Lao-tzu (the father of Taoism) shows that he recognized over 2600 years ago a problem that we're still grappling with today. It is certainly time for a change.

Copyright © 2002, R. Dale Asberry


Michael Feathers

Posts: 448
Nickname: mfeathers
Registered: Jul, 2003

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 12, 2004 7:48 PM
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Excellent blog entry. You said it all.

Javid Jamae

Posts: 16
Nickname: javidjamae
Registered: Jan, 2003

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 12, 2004 9:54 PM
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If you want to do more research, you may want to look into child psychology books. They usually talk a lot about rewards/incentives.

For example, I've read that it is advised to avoid over-rewarding children for doing homework or solving problems because they may start lacking motivation to solve problems unless a reward is involved. It would be prefered to have children solve problems or do homework because they find it enjoyable.

Vincent O'Sullivan

Posts: 724
Nickname: vincent
Registered: Nov, 2002

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 13, 2004 2:33 AM
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> Firstly... get rid of bonuses and at-risk pay.

OK, you've removed my primary incentive for anti-social work activities (e.g. overtime, weekend work, pushing for deadlines, etc.). Um, well at least I can spend more time with my family.

> Secondly, get rid of employee evaluations.

Fine. I now know I won't be taken to task for not pulling my weight and doing any of the above when problems occur.

> Finally... the best thing a manager can do is treat employees with respect.

Er? That's it! Instead of the propect of more money for more work, the best I can hope for is that my manager will now respect me?

Sorry mate, I've already got respect. We're in a trading situation. I give my employer work, I get money.

Vince.

Dale Asberry

Posts: 161
Nickname: bozomind
Registered: Mar, 2004

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 13, 2004 6:00 AM
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##Frankly, we don’t want (or know how) to make the tough effort or dynamic thinking that it takes to encourage others to self-motivate.##

>>OK, you've removed my primary incentive for anti-social work activities (e.g. overtime, weekend work, pushing for deadlines, etc.).<<

I'm not sure about you, but my bonuses have never been tied to those three items you suggest. In fact, I won't work overtime for money. I do it for my teammates and to take responsibility for my own estimates.

>>Fine. I now know I won't be taken to task for not pulling my weight and doing any of the above when problems occur.<<

See the first point I make. Nowhere does the article say "managers - stop giving feedback". Also, many experience what I did with my last performance review - it was a total sham. It only highlighted the lack of skill that my manager has in observation and communication.

>>Sorry mate, I've already got respect. <<

I'm not yet your "mate". Please keep your sarcasm to yourself and lets keep this discussion emotionally honest.

>>We're in a trading situation. I give my employer work, I get money.<<

True, however, it is an agreement on both sides. That agreement implicitly gives you power. Incentives are little more than coercive tactics to take that power from you.

Vincent O'Sullivan

Posts: 724
Nickname: vincent
Registered: Nov, 2002

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 13, 2004 6:52 AM
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> In fact, I won't work overtime for money. I do it for my teammates and to take responsibility for my own estimates.

The thing is, though, is that your contract is not with your team mates, but with your employer. Saying that the overtime (or whatever) you might do is for your team mates rather than your employer implies, to me, skewed priorities.

Taking responibilities for your own estimates is a quite separate issue. Unfortunately, there are frequently times when you have to take responsibility for other peoples estimates. If someone says to me, "We need X by Y and it can only be installed at the weekend." then I might estimate that I can do it with a few 12 hour days and by coming in at 3:00 am on the Sunday but I don't then want to hear that there's nothing in it for me except 'respect'.

> See the first point I make. Nowhere does the article say
> "managers - stop giving feedback".

I agree entirely that most performance reviews aren't worth the paper they're written on. However, calling it 'giving feedback' is nothing more than a renaming exercise, albeit more informally done. Having been given feedback, then what? How do you make getting good feedback an incentive?

> Also, many experience
> what I did with my last performance review - it was a
> total sham. It only highlighted the lack of skill that my
> manager has in observation and communication.

That's par for the course. Most companies employ people who can more or less do the work, under the supervision of others who can more less manage. Like sports players, some are stars, some are workhorses, some are passengers.

What you're proposing is how you'd think things should (ideally) be. What I want (or at least would be interested to see) are practical suggestions suggestions on improving working in an underfunded environment, on old equipment, to an ill-defined spec, against an unrealistic deadline in a team that includes all the people mentioned above.

> >>We're in a trading situation. I give my employer work, I get money.<<
>
> True, however, it is an agreement on both sides. That
> agreement implicitly gives you power. Incentives are
> little more than coercive tactics to take that power from
> you.

This is where things get confusing. You say that "incentives = coercive tactics" but suggest the solution is to replace the position of money in the equation with respect and the like. To my way of thinking, the equation is still the same but my pay packet is smaller and I've lost the opportunity to make it bigger.

Vince.

Keith Ray

Posts: 658
Nickname: keithray
Registered: May, 2003

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 13, 2004 9:53 AM
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I think bonus should be tied to profits. If the company makes a large profit because your team's product is good or great, then the whole team should get a share of the profits.

Jason Yip

Posts: 31
Nickname: jchyip
Registered: Mar, 2003

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 13, 2004 10:57 AM
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Good stuff.

You might be interested in this: http://www.baldrigeplus.com/Exhibits/Exhibit%20-%20Performance%20appraisal.pdf

And also the comment on "making a difference" reminds me of Martin Seligman's Authentic Happiness, http://www.authentichappiness.org/, specifically approaches to happiness.

Clay Nichols

Posts: 1
Nickname: clay
Registered: May, 2004

More research on Motivating Employees Posted: May 14, 2004 12:20 PM
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Someone from the JoelOnSoftware.com blog recommend the following very informative site:

http://www.accel-team.com/human_relations/hrels_05_herzberg.html

Basically, he boils it down to to "areas":
Motivation (things required to motivate you,like recognition)
Hygene - Environmental factors that can hinder, but not provide, motivation. - Good working conditions, etc.

Eric Sink

Posts: 3
Nickname: ericsink
Registered: May, 2004

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 14, 2004 3:38 PM
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I work at a company which is owned by 3 partners, of which I am one. There are a bunch of staff members, none of whom have equity in the company.

Our company is quite profitable. What should we do with the excess money? The 3 partners are obviously entitled to divide up the profits and take the money home. In fact, that's what we do, but we *like* to share the rewards with the staff as well. So before we divide up the spoils, we take a chunk and give a "bonus" to the staff members.

Are you saying we should stop doing this?

Dale Asberry

Posts: 161
Nickname: bozomind
Registered: Mar, 2004

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 14, 2004 3:56 PM
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I'm saying that bonus based on an individual's performance is manipulative and demoralizing. It sounds like the bonus you gave out was based solely on the company's financial performance and is given out as a gesture of kindness.

However, if you divvy that money out (and the employees know it) based on each individual's performance or as a way to get the employees "fired-up" then the long-term result will be the same as a "performance bonus".

Eric Sink

Posts: 3
Nickname: ericsink
Registered: May, 2004

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 14, 2004 4:39 PM
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Okay, I'm still curious. How should that money by divvied up to avoid the "performance bonus" effects you describe? I see two choices:

1. Divide the money equally, regardless of the varying salaries of the staff.

2. Divide the money in exact proportion to salary.

Dale Asberry

Posts: 161
Nickname: bozomind
Registered: Mar, 2004

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 14, 2004 5:24 PM
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I think that both of your suggestions would work. Option 1, however, would do the most to prevent using the bonus manipulatively.

Vincent O'Sullivan

Posts: 724
Nickname: vincent
Registered: Nov, 2002

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 15, 2004 3:12 AM
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Dave,

You seem to b happy with financial rewards, provided they're made on a collective rather than individual basis, but I'm still curious about how you deal with individual performance. Do you just ignore he fact that some employees perform better than others? What positive incentives do you advocate to get people to improve performance? What do you do about individuals whose performance you perceive to be poor?

Vince.

Vincent O'Sullivan

Posts: 724
Nickname: vincent
Registered: Nov, 2002

Re: Why salary bonus and other incentives fail to meet their objectives Posted: May 15, 2004 3:13 AM
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Apologies. Dale not Dave!

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