Blogpost

Learning Corner with Jeffrey Pfeffer: Less Is Better Than More When it Comes to Incentives

Jeffrey Pfeffer

Professor of Organizational Behavior, Stanford University

Some years ago, Men's Wearhouse founder George Zimmer came to a class I taught to discuss a case study I had written on his company.

Zimmer commented on a bonus program I had written about where each store employee (except the store manager) would receive $20 if the store met its "good" sales target for the month, and $40 if it met its "excellent" sales goal. My students thought these amounts were quite small, but Zimmer thought the incentives were perfectly sized. They were large enough to provide some recognition of store achievement, he said, but more importantly, the payouts gave people a chance to celebrate success together without being large enough to distort people's behaviors.

Zimmer's insight that, in the case of incentives, less is often better than more is too infrequently embraced by leaders who instead seek to use substantial rewards to fundamentally channel behavior.

HR Managers and c-suite executives would do well to learn from Zimmer's wisdom. While most employees today assume incentives will be part of their job, how large they are and how they are presented can substantially impact an organization.

Incentives Can Undermine or Crowd Out Intrinsic Motivation

Beginning in the 1970s, studies in psychology found that providing people rewards—extrinsic incentives—could undermine intrinsic motivation for engaging in inherently interesting tasks. One theory suggested that people found incentives controlling, and rebelled against attempts to control their behavior. Another perspective suggested that people interpreted incentives as signaling that a task was inherently unpleasant, reducing their interest in doing it. The takeaway? Incentives have the potential to reduce people's motivation and interest in tasks.

Even economists, who have traditionally looked more favorably on incentives, have also argued that incentives can backfire. They argue that providing extrinsic incentives "crowds out" intrinsic interests in doing something. Consequently, incentives can backfire, and make it less likely that people will do what the incentives want them to do. For instance, one study observed that parents were more often late in picking up their children from a day care center when a fine was imposed, while yet other researchers observed that volunteers who were paid a small amount worked fewer hours than volunteers who were not paid. Here, the evidence suggests that using incentives to drive desired behavior may not work.

Consistent with the idea that smaller is better, smaller incentives will be less likely to crowd out or reduce intrinsic motivation because smaller incentives are less psychologically prominent and salient. For organizations concerned about maintaining intrinsic task motivation—which is probably most workplaces—the crowding out and undermining research provides one more reason to be cautious in the use of incentives.

Incentives Drive Behavior, But in Often Unanticipated—and Counterproductive—Ways

As Bob Sutton and I pointed out in our book on evidence-based management, a huge problem with incentives is that they are too effective at influencing behaviors. And most people and companies aren't great at anticipating how behaviors will change in response to incentives. There are enough examples of this to fill a book—or maybe several.

In 2018, William Dudley, CEO of the Federal Reserve Bank of New York, noted that "misaligned incentives contributed greatly to the 2008 financial crisis." In the scenario that Dudley is referring to, many mortgage brokers were compensated for the number of loans they made—not necessarily for making sound loans that would be repaid. And many of the incentives for mortgage brokers for senior financial industry executives were short-term rewards. Meanwhile, the assets being created (the loans) and the financial results were inherently longer-term. The time horizon on incentives needs to match the time horizon of the results being affective. Simply put, short-term incentives aren't going to be very good for creating long-term results.

How to Make Incentives Work

Based on extensive empirical evidence, there are some simple but important implications for implementing incentives in ways that aren't likely to cause misbehavior that adversely affects organizations.

First, and most importantly, keep incentives small enough to not overly influence behavior. That may seem counterintuitive—many workplaces implement incentives precisely to influence behavior—but, as noted, people are often quite bad at predicting the ways in which incentives may drive behavior.

Second, spend time trying to anticipate how people could achieve the goals signaled by incentives in ways that are harmful to the organization's interests and try to put up various guardrails to detect and deter such behavior. One way to do this, is to monitor how rewards are being received and the behaviors associated with them based on consistent conversations with employees who are benefiting from the rewards program.

And third, if incentives are driving bad behavior, don't do what many workplaces do, which is to try and solve an incentive-based problem by implementing even more incentives. Many companies try to use incentives to substitute for leadership (coaching and feedback) or a strong, positive organizational culture. As research going back decades from places like shows, leader behavior matters a lot in motivating performance and reducing turnover. Incentives are a poor substitute.

In the case of incentives, the inescapable conclusion is that less—less reliance, less use, less magnitude—is most often better than more.

Photo: Unsplash

Related Resources

Want to keep learning? Explore our products, customer stories, and the latest industry insights.

Verbind de  doelstellingen voor uw  werknemers met de  bedrijfsresultaten

Datasheet

Verbind de doelstellingen voor uw werknemers met de bedrijfsresultaten

Het is niet eenvoudig om al uw medewerkers gemotiveerd en betrokken te houden. U moet ze een duidelijk doel voor ogen stellen en ervoor zorgen dat dit doel in lijn is met de doelstellingen van uw organisatie. Cornerstone Performance biedt gedetailleerde inzichten in het talent binnen uw organisatie en kan snel werknemers identificeren en mobiliseren om aan de topprioriteiten voor uw organisatie te werken.

De businesscase voor vaardigheids- intelligentie

Onderzoek

De businesscase voor vaardigheids- intelligentie

Uit onderzoek van het Institute for the Future wordt duidelijk dat maar liefst 85 procent van de banen die in 2030 zullen bestaan, nu nog niet bestaan. Werknemers moeten nu meer dan ooit in staat zijn om zich aan te passen, een andere richting in te slaan en klaar te staan voor nieuwe uitdagingen. Dit is echter niet ogelijk zonder diepgaande inzichten in de vaardigheden van werknemers, de sterke kanten van werknemers of manieren waarop verborgen talent kan worden aangeboord. Vaardigheden zijn voor iedere organisatie de universele taal voor groei en succes geworden. Vaardigheidsintelligentie biedt bedrijven de mogelijkheid hun talent beter te begrijpen, te ontwikkelen en toe te wijzen om op dynamische wijze aan de behoeften van de organisatie te voldoen. Het helpt ons zelfs om bedrijfskritieke beslissingen sneller en met meer vertrouwen te nemen. Maar hoe krijgt u die inzichten nu precies? Kunstmatige intelligentie (AI) voor HR is een gamechanger. AI heeft de kracht om de schaalbaarheid van HR te vergroten, patronen in het gedrag van mensen te herkennen, en waar en wanneer nodig gepersonaliseerde ondersteuning te bieden. Met AI kunnen HR en bedrijfsleiders werknemers effectiever laten om- en bijscholen om aan veranderende bedrijfsbehoeften en -doelstellingen te voldoen, welke behoeften de toekomst ook brengt. Met de juiste toepassing van machine learning en technologieën voor kunstmatige intelligentie kunnen werkgevers meer doen dan vaardigheden bijhouden, en actiegerichte talentpraktijken mogelijk maken op een manier die nooit eerder mogelijk was. In dit Lighthouse Research & Advisory-rapport, gebaseerd op een onderzoek onder meer dan 1.000 werkgevers en duizenden werknemers, ontdekt u: het concept vaardigheidsintelligentie hoe AI centraal staat bij deze initiatieven de usecases en toepassingen van vaardigheidsintelligentie Download nu het rapport om erachter te komen hoe AI en vaardigheidsintelligentie uw organisatie kunnen helpen om meer inzicht in bedrijfsactiviteiten te krijgen, voorspellingen te doen en effectief te reageren op dynamische marktveranderingen.

Content die net zo snel evolueert als de werkwereld

Datasheet

Content die net zo snel evolueert als de werkwereld

De benodigde vaardigheden om in het bedrijfsleven relevant en succesvol te zijn, veranderen voortdurend. Met Cornerstone Content Anytime- abonnementen kunt u uw medewerkers ondersteunen met de meest gevraagde vaardigheden van dit moment. U zorgt daarmee voor meer betrokkenheid, betere communicators, sterkere leiders en beter functionerende teams. Verbeter de prestaties met moderne content en een leerervaring die voor iedere cursist wordt gepersonaliseerd.

Plan een persoonlijk gesprek

Praat met een Cornerstone-expert over hoe wij kunnen helpen met de unieke behoeften van uw organisatie op het gebied van personeelsmanagement.

© Cornerstone 2022
Juridisch