Do Incentives Work? Wanna Rumble?

In the several months since the WorldatWork "community" launched, by far the most heated topic debated to date has been about cash incentives and if they work, or should be abandoned, as suggested by some. There were lots of opinions on both sides of the contentious on-line debate, including many by persons named "anonymous," who apparently weren't convicted enough in their own beliefs to share their real name with their colleagues.

Part of the debate started with a video presentation by Dan Pink at the TED conference earlier this year in which he suggested that traditional incentives don't work, at least in certain situations, especially where creativity or cognitive "thought" is involved.  There may well be some truth to this research.  Incentives for creativity generally isn't a very well-researched area, and so I'll defer to Mr. Pink on this point. His presentation also suggested that work outputs that required "cognitive skills" (which is just about everything that can't be done rote) were negatively impacted by incentives, but that's where I got off the bus. He even suggested that incentives and performance we're negatively correlated (as incentives go up, performance goes down).

Pink's focus was on intrinsic motivation, and that's certainly a powerful motivator for some of us (it's what drives most of us bloggers, because there aren't many [any?] external motivators involved, like money). His theme was that if you could give "autonomy, mastery and purpose" to people, that they would produce desirable outcomes in the absence of external (i.e., monetary) incentives. And you know what, for some of us intrinsically-motivated folks (sometimes referred to as "Type A" personalities), he may be onto something.

The problem with this intrinsic motivation theory, and it's not a small one, is that intrinsic motivation is not a major factor for what drives many workers, especially those who are motivated largely by money, and those who are less than fully "engaged." Most people "work to live," not "live to work," although some of us Type A's could be accused of falling into the latter category.

What isn't discussed is that most well-designed, strategically-aligned incentives aren't about internal motivation, creativity or even thought, per se (although a little bit certainly helps!). Incentives are about outcomes and results, and if you want results, there's nothing like a few (or many) bucks to sharpen one's focus on the end goal or outcome.

In a perfect world, we would all love our jobs, be fully engaged, and and be driven by "autonomy, mastery and purpose," but the real truth is that this is not what drives the typical workforce participant. Organizations utilize incentives, not because they want to give away "money for nothing" (to quote a famous line by Dire Straits), but because people respond to financial incentives.  Since the typical employee works for money, it's one of the biggest drivers of goal-directed behavior.

I hate to be a Pollyanna-crusher, but that's the reality. Like it or not, well-designed and well-communicated strategic incentives work.  Can you imagine what would happen if you took your sales force off all incentives and put them all on a straight salary (even if you could somehow gave them more autonomy, mastery and purpose)? What do you think would happen?  I'll leave that you your non-incentivized cognitions... My guess? It wouldn't be pretty for your or your company's sales (or your job, if you recommended it).

Ideally, we could have both intrinsically motivating and engaging jobs and workplaces, making any additional incentives that much more motivating. The intrinsic motivation is part of the employment experience is especially important for job satisfaction, maintaining undesired turnover at low levels, and quite possibly for enhanced overall job performance, but it generally isn't a huge driver of results-directed behavior, unless that's just your nature.

Financial incentives are far from dead, not because businesses don't know better and want to just give their money away, but because they do impact goal-directed behavior. But they do require rewards professionals to think about their costs, design and business impacts before implementing (just don't provide incentives for the thinking part - that could be dangerous!).

Don't let a little laboratory-styled research keep you from doing what you know best: motivating goal-directed behavior towards strategically important business objectives!

Doug Sayed is principal at Applied HR Strategies, a Seattle area compensation consultancy, and author of the StrategicPay Series Base Pay Toolkit, a guide for helping non-compensation experts to develop their own strategic compensation programs.  Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University.

Comments

[Klaus]

Nice job, Doug. This is someting that needed to be said in the incentive debate---many people are indeed motivated by money--whether it's moving to the next rung on the performance scale or just keeping your job.

[Windsor Lewis]

Thanks for your insights Doug! This is such an interesting topic right now. Of course the hard part is designing measurements that contribute to the business in a meaningful way. I'm growing tired of this idea that general employee bonuses should be based on 50% corporate results and 50% personal results when line managers fail to take responsibility for establish any personal goals at all. In such cases the program quickly goes from PPP to pure entitlement. Ugh!

[working girl]

So true. No one viewing the laser sharp focus of a top salesperson could doubt that monetary incentives shape behavior.

[Paul Hebert]

You know where I come down on this Doug! Thanks for your point of view.

[Doug Sayed]

Thanks for the comments everyone, and for not being "anonymous" in doing so!

[Derek Irvine, Globoforce]

Of course say they are motivated by money -- it's the most fungible of rewards. I would still argue cash is not the most effective of rewards in the long run. You can't tell your colleagues, "Look, I got $500 bonus, what'd you get?" You CAN say, "I got to take my wife to Vegas or I got this awesome TV I've always wanted thanks to that incentive program." Such "brag-ability" has great power in an organization as well. As does cash bonus for the negative...just see this Dear Lucy column in FT as an example: http://blogs.ft.com/dearlucy/2009/09/can-i-question-my-co-workers-bonuses/