Why your incentive structure might not be motivating your employees!

Research says that almost 90% of organisations have a formal reward and recognition program in place. Yet only 41% of employees believe they are effectively rewarded by employers.

There is an evident gap between what we as leaders offer in our incentive programs & what would benefit our employees.?

What is the gap?

The age-old “Carrot and Stick” reward systems were designed to work well for jobs/roles which were simple rule-based. Stemmed from the idea of motivating and engaging "hourly" employees, these systems include-?

• Use of extrinsic motivators - forcing a source of motivation on employees through rewards, bonuses/ hikes, etc.
• The if-when technique - promising a reward/incentive only based on an output metric.?
• Punishment approaches - introducing penalties, pay cuts, threats to job security to get work done.

While the majority of our workforces are now engaged with complex work, which primarily requires creative and conceptual abilities, the reward system is yet to be updated.?

Daniel Pink in one of his talks, reveals that ‘social psychologists have proven that incentive-based rewards fail to inspire.’

Findings from numerous studies further confirm that the inadequacy of these reward mechanisms and the gap in current incentive programs is due to inappropriate psychological assumptions that built them- something that might work sometimes but is never the long-term solution.

Let’s try to understand these existing gaps to offer an alternative to incentivising new-age jobs.

Why is the ‘Carrot-and-Stick’ method not motivating??

Ask anybody what motivates them to work daily, and they will answer anything but money. The idea that ‘higher the pay, better the performance’ is false acclaim. It only works for tasks that require mechanical skill and have a proven result. Frederick Herzberg rightly says, ‘Just because too little money can irritate and demotivate’ does not mean that more and more money will increase satisfaction, much less increase motivation.’

Existing reward mechanisms based on age-old techniques limit our understanding of recognition and thus our incentive structures by -

Making Recognition Transactional?

A study suggests 39% of employees feel underappreciated at work, with 77% reporting that they would work harder if they felt better recognized.?

While a reward offered as a transaction for a task can build some motivation, the truth is such rewards only recognize the top performers. They further make it difficult for the majority of employees to grow by -?

• Narrowing down problem-solving approaches?
• Reducing risk-taking abilities?
• Blocking creativity and innovative thinking?
• Creating an undue fear of failure

Another report further confirms that the fear of failing to achieve an award increases stress and causes a significant drop in morale amongst employees, both of which are cultural losses.?

Failing To Improve Efficiency?

“If an employee is offered X, he performs Z times better.”

The Candle Problem developed by Karl Duncker is a widely-acclaimed experiment that tests problem-solving efficiency. To demonstrate my point, let’s consider the variant of the Candle Problem around incentives in the working setup.?

In this experiment, subjects were divided into two groups. Group 1 was offered $20 if they were the fastest, and Group 2 was only asked to solve the problem within 15 min. When they were assigned a manual task, Group 1 performed statistically better than Group 2. But when the task required creativity and out-of-the-box thinking, Group 1 performed no better than Group 2, despite having incentive as an external motivator.

?This experiment tested the efficiency of rewards repetitively for 40 years, challenging the inefficiency of such rewards in complex/creative problem-solving. Its result published in the HR Management Journal further stated that ‘incentive-related pay schemes cause more stress than motivating employees.’?

Rebuilding Your Incentive Program

Dealing with the above issues can be a daunting task. However, there’s always a solution.?

Research by McKinsey reveals that intrinsic motivation helps 46% of employees achieve higher levels of job satisfaction and 32% find greater levels of commitment to their jobs. Studies further suggest that since 'intrinsic motivation' is not dependent on external intervention and is self-driven, it is stronger and garners the best results.

According to best-selling author Daniel Pink, we can start by rebuilding our incentive program based on the 'A.M.P model of motivation' -?

• Autonomy - give your employee the room to nurture their urge to direct their own lives by steering clear of micromanagement.
• Mastery - nurture your employees' desire to get better at something that matters to them by assigning them preferable roles.
• Purpose - guide your employees in their interest to do things that add value to them and the organization.

Remember, as long as your employees love what they do and find a reason for it, the motivation shall never die. And as leaders building workforces, let's take it upon us to create an 'intrinsic drive' and incentivize performances based on it.?

Have you brought a change that solves any of these problems? Are you actively making amends to your reward & recognition mechanisms? Tell me in the comments below!