Impact of Monetary Awards on Productivity

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This topic contains 3 replies, has 3 voices, and was last updated by  Mark Hammer 5 years, 8 months ago.

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  • #177363

    Henry Brown

    IMO an interesting study which brings to the table the importance of that A: careful analysis should be done before implementing any change and B: Often “one size shoe does NOT fit all”

    Title: The Dirty Laundry of Employee Award Programs: Evidence from the Field

    Authors: Timothy Gubler, Ian Larkin, and Lamar Pierce

    Executive Summary:

    Many scholars and practitioners in human resource management have recently argued that awards and other forms of on-the-job recognition provide a “free” way to motivate employees. But are there unintended, negative effects of such awards? In this paper, the authors simultaneously examine the costs and benefits of an attendance award program that was implemented in an industrial laundry plant. The award used in the study was effective in that it reduced the average rate of tardiness among employees. However, it also led to a host of potential spillover effects that the plant manager readily admits were not considered when designing the program, and that reduced overall plant productivity. Overall, findings demonstrate that an award program that appears to be effective may also induce unintended consequences severely reducing the net value of the program. These results highlight the impact such a program can have on the overall performance of the firm and suggest caution when designing and implementing such programs. Key concepts include:

    • Even simple awards programs can have much broader and complex implications for employee behavior.
    • In the study, two highly valued employee groups – the most productive workers and the most consistently punctual workers – suffered a 6-8% decrease in productivity after the award was instituted. This finding is remarkable because it suggests that awards for one type of behavior have the potential to “crowd out” positive behavior in a completely different realm.
    • This research suggests that non-monetary but extrinsic rewards such as corporate awards act more like monetary rewards than they do intrinsic motivators such as love for the job or empowerment through autonomy.

    Award programs with a low likelihood of winning may be ineffective because employees do not habituate good behavior, and instead lead to a highly strategic response from employees.

    Author Abstract

    Many scholars and practitioners have recently argued that corporate awards are a “free” way to motivate employees. We use field data from an attendance award program implemented at one of five industrial laundry plants to show that awards can carry significant spillover costs and may be less effective at motivating employees than the literature suggests. Our quasi-experimental setting shows that two types of unintended consequences limit gains from the reward program. First, employees game the program, improving timeliness only when eligible for the award, and strategically calling in sick to retain eligibility. Second, employees with perfect pre-program attendance or high productivity suffered a 6% to 8% productivity decrease after program introduction, suggesting they were demotivated by awards for good behavior they already exhibited. Overall, our results suggest the award program decreased plant productivity by 1.4%, and that positive effects from awards are accompanied by more complex employee responses that limit program effectiveness.

    Download Paper:

  • #177370

    Mark Hammer

    Back when I was studying animal learning and conditioning, one of the more intriguing ideas in the literature was that, although positive reinforcement of desirable behaviors was generally more effective in directing an organism to do what you wanted than punishment of undesirable behaviors, one of the unintended side-effects of positive reinforcement was that it induced “behavioral stereotypy” (see 30 year-old work by Barry Schwartz at Swarthmore). In other words, it introduced a certain inflexibility and narrowness in what the organisms being trained were doing. Where punishment essentially conveyed “Do anything BUT this“, reinforcement could inadvertently convey “Do ONLY this, and nothing BUT this”.

    The general takehome message was that, whether rats, pigeons, dogs, or people, organisms are constantly learning, and very often learning things OTHER than what you wanted them to learn. And often, this happens because one is unintentionally rewarding them for behaviors other than what you were aiming for. Rewards programs are generally not much more intelligent than automatic feeder mechanisms dispensing food pellets to pigeons, and reward superficial indicators of some desired outcome, as opposed to more fully-fleshed comprehensive indicators of some abstract quality of performance.

    Much the same way that managers can come to manage to the performance indicators, employees will respond to the rewards/awards.

    This is the perpetual challenge of applying incentives for performance: finding a balance between indicators that are easy to measure and keep track of but too narrow in scope, and those that are burdensome to apply but more fully capture the entire scope what it is you want to reward and acknowledge. Lean too much in the one direction, and you have perplexed managers and employees. Lean too much in the other direction, and you have staff who are gaming the system and behaving more or less like pigeons who think they need to hop in circles, standing on one leg, in order to get fed.

  • #177368

    Henry Brown

    Couldn’t agree more!

    Would also add that this tool is ONLY a tool and not the silver bullet which with little or no effort is going to all of a sudden increase the productivity of the organization

  • #177366

    Terrence Hill

    Daniel Pink’s Book Drive is a nice treatise on this topic. Doesn’t matter because monetary awards have gone the way of training and travel funds – kapoot!

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