Making incentive pay work is "a marathon, not a sprint," says one HR expert.Incentive pay has always been a controversial idea. Its supporters say it rewards achievement; its critics say it leads to all-but-certain “teamicide” — the deterioration of morale and cooperation—because it overemphasizes competition.

Last year, psychology professor Barry Schwartz wrote a high-profile article for Business Week that could have been the death knell for incentive pay.

In “The Dark Side of Incentives,” he used the financial meltdown as a jumping-off point to posit that “incentives don’t just fail; they often backfire.” Among the studies he cited was one in which Israeli parents who were fined for picking up their children late actually began picking them up late more often than they had before the fines were imposed, and another in which people were less likely to help move furniture if they were offered monetary compensation. Schwartz then took the anti-incentive argument a step further, saying that incentives fail by removing the moral component of decision-making—in other words, making good work more about how much a worker cares about money than about the conscientious drive to perform as well as possible. “Despite our abiding faith in incentives as a way to influence behavior in a positive way,” he wrote, “they consistently do the reverse.”

This was far from the first attack on incentive pay. In his blog entry on the subject, Joel Spolsky quoted an article from 1993:

Alfie Kohn, in a now-classic Harvard Business Review article, wrote: “at least two dozen studies over the last three decades have conclusively shown that people who expect to receive a reward for completing a task or for doing that task successfully simply do not perform as well as those who expect no reward at all.” He concludes that "incentives (or bribes) simply can't work in the workplace". DeMarco and Lister go further, stating unequivocally that any kind of workplace competition, any scheme of rewards and punishments, and even the old fashion trick of "catching people doing something right and rewarding them," all do more harm than good.

However, other studies suggest that incentives can work. Bright Hub laid out the results of many different research approaches, including a meta-analysis of 72 studies on the subject. Its conclusion: “How has research ranked incentive pay? Employee motivation strategies work, but with limitations.” For instance:

A 1998 study by Jenkins, Gupta, and others that analyzed thirty-nine studies conducted over four decades substantiates the claim that cold hard cash motivates workers irrespective of job conditions or settings. This research also concludes that while higher pay makes employers happier, this does not necessarily translate to better performance, but absence of adequate monetary incentives causes resentment and dysfunctional teams.

Incentive pay has many defenders, including in the human resources world. Ann Bares of Compensation Force thinks that much of the criticism of incentive pay comes from a lack of understanding that making it work is “a marathon, not a sprint.” Though she writes that she’s seen incentive pay fail, she believes that under the right circumstances it can “transform an organization”:

It takes a few years for the plan to become embedded in the work environment and for the necessary information sharing and education to become routine and habitual. Too few organizations are prepared to devote themselves to the marathon.  Too many will run a sprint or two, then either write off incentives as a waste of time or go chasing the next short-term miracle du jour.

01 December 2010

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