Is money the best incentive to improve employees' performance?

In the interesting study “Incentives, motivation & workplace performance: Research & best practices” done by Dr. Harold Stolovitch, Dr. Richard Clark & Dr. Steven Condly (2002), they have provided conclusions that I thought were interesting and worth sharing.

In their study the authors argued that their goal is to create a clear and a comprehensive conclusion about incentive systems as the previous various studies were conducted by different disciplines and didn’t provide a reasonable consensus over the value of organizations’ incentive systems, and in some instances the studies even provided conflicting findings, therefore, they have went over 45 studies, done web-based questionnaires & telephone interviews and studies 145 US organizations using incentive schemes.

So here is a summary of the findings in that paper,

How effective a tangible incentive scheme (Cash & Awards) was?

In 57% of the cases reported and studies objectives were either met or surpassed, therefore it is effective.

The study revealed the following

·        Properly selected and administered tangible incentive scheme (Cash & Awards) can dramatically increase the performance.

·        When tangible incentives are carefully selected, implemented, and monitored, they increase incentivized work performance an average of 22%.

·        Tangible incentives can significantly increase one’s intrinsic interest in incentivized work tasks.

·        Previous claims that tangible incentives often cause unintentional decreases in the intrinsic (personal) value for work tasks were not supported by the research. (this diminishes the argument raised by another study done by Deci et al (1971) that such schemes create a “money grubbing” mentality and employees’ interest in work diminishes.)

However, an interesting finding was, “No evidence was found to support the impact of intangible incentives such as employee of the month or other recognition incentives”, The report continued to argue that the tangible incentive schemes had a 26% improvement effect to encourage people to “think smarter” moreover, such schemes as well had a positive impact on quality not just quantity and a positive impact on team performance.  A great observation the authors made was “monetary incentives produced a 27 percent overall increase in performance while non-cash incentives yielded an average of 13 percent higher performance.”, moreover, the longer the program the higher and greater the impact is, a program that extends beyond a year will produce a 44% gain when compared to less than 20% performance increase of a one-week program.

The authors also left 5 essential conditions for the incentive program to work best

·        Current performance on specific work goals is inadequate.

·        The cause of the inadequate performance is motivational (rather than due only to a lack of knowledge and skill or to environmental barriers).

·        The desired performance type and level can be quantified (how much, how often, how many).

·        The goal is challenging yet achievable (easy goals are not appropriate).

·        The organization requires that all other performance goals continue to be achieved at or above current levels.

I could see the above work well as noted in a performance-based environment; a warehouse, production, driving, sales…etc. how would a different environment or workplace be motivated, things like, interior design jobs, R&D, support functions… perhaps will be left for another post.