INCENTIVES, MOTIVATION AND WORKPLACE PERFORMANCE

Harold D. Stolovitch, Richard E. Clark and Steven J. Condly

Controversy and uncertainty have characterized the issue of using incentives to improve workplace performance. Organizations in the United States spend an estimated $117 billion annually on work-related incentives programs. Researchers such as Deci (1971; 1972) and Lepper, Greene and Nesbitt (1973) claim that tangible incentives destroy personal interest in work. Eisenberger, Rhoades and Cameron (1999) state that incentives should not be given for performance that would normally be achieved without them. However, in specific cases, they assert that well-targeted incentives can have dramatic impact on workplace performance.

Because of confusion in the research and a lack of systematically documented incentive workplace practices, organizations tend to implement incentive systems without a clear understanding of the factors that increase the positive effects and eliminate negative consequences.

Our research team set out to cut through the confusion and create a clear, accurate set of conclusions about incentives that is supported by research and best practice. The questions that guided our study were:

1. Do incentives increase work performance?

2. What kinds of incentives are most effective?

3. What organizational conditions indicate a need for an incentive system?

4. What model best expresses the events that occur during the selection and implementation of successful incentive programs?

Research Methodology

We conducted the one-year study (September 2000 - October 2001) as follows:

  • Reviewed all available English language research on incentives. This included over 600 studies of which 45 passed our screening for being adequately designed and reported.

  • Carried out a meta-analysis of acceptable studies to derive overall research conclusions. Meta-analysis provides a highly accurate synthesis of research results. Our meta-analysis included laboratory and field-based studies conducted by many researchers at varying points in time.

  • Carried out an extensive survey of U.S. organizations that apply various forms of incentive systems. This included an on-line, highly detailed questionnaire and structured interviews. The screening process began with over 1,000 organizations and produced 400 qualified respondents. As a result of careful preparation, 145 lengthy surveys were completed (37 percent response rate). The research team also conducted 90 structured interviews with incentive system designers and selectors, incentive recipients and supervisors of recipients.

Two Major Myth-Breaking Findings

Myth 1: Incentives destroy personal, intrinsic interest in work.

Research findings: To the contrary, incentives appear to increase the value people assign to work goals. Rewarding people for exceeding targets causes them to spend more time on the incentivized task which leads to heightened interest and satisfaction. It also appears to strengthen self-confidence and employee loyalty.

Myth 2: Incentives only lead to paying for the result you would have had anyway.

Research findings: Well-designed and implemented incentive systems increase performance…dramatically. Only eight percent of workers surveyed in our study said they would have achieved their results without incentives.

Study Findings with Respect to the Research Questions

Returning to the four research questions, here are the key study findings:

1. Incentives greatly increase performance. Tangible incentives (money, gifts, travel) increase performance by an average of 22 percent. Individual-based incentives result in a 27 percent gain. Team-based incentives improve performance by an amazing 45 percent. (More research is required here.)

2a. There are four major types of incentive systems. In order of effectiveness from most to least, these are: quota-based (performance goal); piece rate-based (produce more units); tournament-based (competition); fixed-rate based (specified amount for specified work). There is no significant difference between tournament and fixed-rate.

2b. With respect to timeframe and effectiveness of incentive systems, the study found that long-term incentive programs (longer than six months) have the strongest effect - 44 percent performance gain. Intermediate term (approximately six months) result in a 30 percent increase in performance. Short-term programs (one week or less) offer a 20 percent performance gain.

2c. When comparing the effectiveness of incentive systems on quality versus quantity outputs, there are no significant differences. Incentive systems affect quality and quantity equally and positively.
Concerning goal achievement, incentive systems have an impressive positive impact. The study found that 57 percent of survey respondents met or surpassed performance objectives; 92 percent surpassed, met or partially met the performance objectives for which the incentive systems had been designed.

2e. In terms of effectiveness of the incentive - monetary or gift/travel - the study found monetary to yield a 27 percent increase in performance. Gifts and travel provided a 13 percent increase. However, none of the studies we examined dealt with perceived value of non-monetary, tangible incentives or cost differential of monetary versus gift/travel. This is an area for further research. In the survey, only 23 percent of incentive programs included recipients' participation in incentive selection.

3. Responding to the question on conditions indicating a need for incentive systems, the study team found that incentive systems work best when current performance is inadequate, the cause of inadequate performance is motivational and desired performance can be quantified (how much; how often; how many). Goals must be challenging but achievable. All other work goals must be achieved at or above current levels.

4. Based on all findings, our research team developed the Performance Improvement By Incentive (PIBI) model (to view the model, click on title), derived in large measure from Clark's (1998) CANE model of motivation.

This model offers a diagnostic/prescriptive tool for incentive system selection and implementation. It helps identify critical questions and issues requiring attention and provides guidance through step-by-step procedures. It also assists decision-makers to troubleshoot and improve the incentive system.

Conclusions

This study makes a significant contribution towards addressing many of the myths, uncertainties and controversies surrounding the relationship between incentives, motivation and workplace performance. Both research studies and field practice demonstrate convincingly that incentives work. Incentives positively and strongly influence workplace performance (quantity and quality), the value workers attribute to goal achievement and emotional commitment to reach goals and increase performance. They also appear to enhance loyalty to the organization.

However, you must select incentives only when there is a motivation gap and only for challenging goals. It is essential to involve targeted recipients in the selection of incentives and to ensure equity and fairness. To achieve incentive system success, focus on implementation and communication. Monitor the incentive system continuously.

A great deal of research is still required to uncover details in the links between incentives, motivation and workplace performance. This study contributes greatly to our understanding and practice of incentive use. It offers an initial comprehensive and research-based approach for developing your own unique, effective incentive system.

References

Clark, R. E. (1998) Motivating performance: Part 1 - Diagnosing and solving motivation problems. Performance Improvement, 37(8), 39-46.

Deci, E. L. (1971). Effects of externally mediated rewards on intrinsic motivation. Journal of Personality and Social Psychology, 18, 105-115.

Deci, E. L. (1972). The effects of contingent and non-contingent rewards and controls on intrinsic motivation. Organizational Behavior and Human Performance, 8, 217-229.

Eisenberger, R., Rhoades, L, & Cameron, J. (1999). Does pay for performance increase or decrease perceived self-determination and intrinsic motivation? Journal of Personality and Social Psychology, 77(5), 1026-1040.

Lepper, M. R., Greene, D., & Nesbitt, R. E. (1973). Undermining children's intrinsic interest with extrinsic rewards: A test of the over justification hypothesis. Journal of Personality and Social Psychology, 23, 129-137.


This article is based on a research study supported by a grant from the Society of Incentive and Travel Executives (SITE) Research Foundation and sponsored by the International Society for Performance Improvement (ISPI).

2002 Harold D. Stolovitch


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