Incentives

Incentives and Rewards – Part 1

In our quest for continuous improvement, we benefit enormously from the work of The Incentive Research Foundation and their quarterly publications. The third-quarter 2018 report is wide-ranging and packed with information about intrinsic and extrinsic incentives, cash and non-cash rewards and the psychology that influences their impact. We believe it contains many valuable indicators about using incentives to improve performance and to help to achieve an organisation’s goals. For that reason we are publishing a series of 3 reviews summarising key topics and research findings, all with grateful acknowledgement to the Incentive Research Foundation and the academics who conducted the research.

The editor’s introduction to the latest IRF Academic Quarterly report includes the statement that:

“It’s no coincidence that organizations more than tripled their use of non-cash rewards during a simultaneous and profound shift in the economy and workplace. They did so because non-cash rewards, in general, generate more effort and higher performance than cash rewards from workers in non-routine, and/or creative jobs — work that now constitutes the majority in advanced economies.”

So, this sets the scene, but is just the precursor to the key facts and conclusions, revisiting and qualifying 40 years’ worth of scientific surveys.  Our 3 reviews, extracted from the 6 academic research projects featured in the IRF’s Quarterly report, are split as follows:

  1. Intrinsic motivation and extrinsic incentives
  2. Responses to points, cash and gift card programmes
  3. Choosing non-cash rewards for maximum satisfaction

1: Intrinsic motivation & extrinsic incentives

The workplace has changed dramatically for many, compared with a century ago.  The transition from the Industrial Age to the Information Age requires a shift in thinking about workplace incentives, as well as other aspects of employment practice.   Reward systems designed for the production line, or similar routine, repetitive tasks, are less relevant now.  Employees, empowered by fast sophisticated information technology, are increasingly given wider autonomy to resolve issues and innovate, while performing interesting work.  Better rewards are constantly needed to maintain employee engagement and productivity.

There has been much debate and books written in the 21st century about the purpose and effectiveness of incentives.  One argument is that rewards replace or devalue the inherent satisfaction which much creative work produces (intrinsic motivation).  Another is that incentives become indispensable as a means of maintaining employee engagement and productivity.

Others believe in extrinsic rewards but only to incentivise workers performing routine, repetitive work that holds little or no intrinsic interest. This study looked at the effects of extrinsic rewards on repetitive work and interesting, creative work.  It shattered both myths.

The report’s summary says:

“Extrinsically motivated behaviours are governed by the prospect of instrumental gain and loss (e.g. incentives), whereas intrinsically motivated behaviours are engaged for their own sake (e.g., task enjoyment). The big question, unanswered prior to this research, was whether extrinsic incentives can impact intrinsic motivation to result in higher performance, and if so, when and how?

This is a vital question given the increasing prevalence of non-routine work.  After all, even though more people perform “interesting” work today, employee engagement numbers have improved only marginally since broad measures began in the early 1990s. If extrinsic incentives do more harm than good in motivating these workers, or at best, have no impact at all, then what is left for a leader to do in order to increase his or her team’s engagement and performance?”

The report summary continues with the following information and comments:

“Incentives can be defined as anything offered that is directly or indirectly tied to performance or behaviours. Cash and tangible non-cash rewards certainly qualify, but so do things like promotions, health benefits, choice of assignments, awards and recognition.”

The authors believe that incentives and rewards play an important role in motivating today’s more creative workforce but, where a worker performs “quality” (i.e., complex, creative) versus “quantity” (routine, mindless) work, those rewards must be designed and presented differently. In other words, they believe that some extrinsic rewards can and do amplify intrinsic motivation.

The report’s authors conducted a meta-analysis of unprecedented scale and scope, covering almost 250,000 individuals in over 180 journal articles, conference papers, and dissertations going back four decades. The results are summarised below:

  • First, the authors determined that intrinsic motivation is more important for performance in creative work than in routine work (quality vs. quantity).
  • Next, they found that the salience of incentives was critical; for example, quality work and performance are positively influenced by extrinsic rewards, but those rewards must be indirect, meaning their link to performance is implied, not explicit. The authors conclude that indirect incentives influence intrinsic motivation “to a strong degree.”
  • The subtle expectation of some form of extrinsic reward for work, such as promotions, bonuses, gifts, or even increased autonomy and praise, motivates creative workers, even when they are intrinsically driven by the interesting work they perform.
  • Performance criteria really matter for motivation. Extrinsic rewards are a more powerful motivating force for quantity-oriented tasks (i.e., where a worker performs routine, uninteresting work) than to amplify intrinsic motivation.

On average, people who enjoy their work will perform better than those who don’t, but they will perform even better when indirectly incentivised with tangible and intangible rewards.

Citation:

This summary is based on an article by Christopher P. Cerasoli (Group for Organizational Effectiveness), Jessica M. Nicklin (U. Hartford), and Michael T. Ford (SUNY Albany).
Psychological Bulletin, American Psychological Association. Vol. 140(4), July 2014, 980-1008.
Availability: The full text of this article is available in the journal: Psychological Bulletin, July 2014 (http://dx.doi.org/10.1037/a0035661).
A free version can be obtained from Hartford University at: http://unotes.hartford.edu/announcements/images/2014_03_04_Cerasoli_and_Nicklin_publish_in_Psychological_Bulletin_.pdf

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