Q&A: Avoiding Demotivation

Employee awards programs may have unintended consequences.

By Joan Mooney Sep 1, 2013
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Are you sure your awards and incentives programs achieve their goals without resulting in unintended consequences? Ian Larkin, an assistant professor of business administration at Harvard Business School, where he teaches management and negotiation, says you might be surprised.

Larkin recently conducted a study that found awards programs can have "spillover effects" that actually demotivate employees. Below he shares his insights.

Please talk about the company you chose to study and what you were trying to find.

These were hourly employees doing manual labor at an industrial laundry plant, cleaning uniforms for companies in the Midwest. The company has a very complex operations chain, from getting the soiled garments to returning cleaned, pressed garments back to the customers. Because there are a lot of employees and a lot of steps involved, one absent employee could throw off the whole system.

The plant manager wanted to incentivize employees both to come to work every day and to show up on time. Employees with perfect attendance over a month, meaning no unexcused absences and no late days, became eligible for a $75 gift card to a local restaurant or store. The plant manager then held a meeting attended by all employees, where those eligible for the award put their name in a hat and a winner was chosen. We wanted to look at different outcomes—not just attendance.

What was the most important finding?

The direct effect was that absenteeism decreased. But for a few key employees, there was a negative effect. Employees who had perfect attendance before the employee awards program began became 6 percent to 8 percent less productive. They were already exhibiting good corporate behavior; they didn’t need an award to show up on time. Then they saw their fellow employees all of a sudden become eligible for the award. Our hypothesis is, that proved demotivational to them.

What were the unexpected results of the awards program?

There were two types of unintended consequences. One was that some employees gamed the system, showing up on time only after the awards program started and calling in sick rather than losing their eligibility for the award. Second, the company already had a program to give a small increase in pay if an employee was more productive. So a small group was working harder so they could get the maximum pay. The response of those people—that they cut back 6 percent to 8 percent on productivity—was surprising. In the cost/benefit analysis, that was a lot more important than the average employee showing up a couple minutes early.

The plant manager thought the program was a success because more employees were arriving early, and that’s all he was looking for. But spillover effects are important. It’s important with an awards program to recognize excellence rather than give an award for doing something that should be expected. Awards are probably better left to situations where someone has gone above and beyond.

Explain the difference between extrinsic and intrinsic motivation.

The dichotomy between extrinsic and intrinsic awards is false—both matter. An extrinsic reward has financial value and peer recognition. Extrinsic awards do motivate. They have benefits and costs—and spillover effects.

It’s possible to have programs that make a job more interesting. You can hire employees who really love the work. I don’t think setting up an award to encourage intrinsic motivation is possible.

Do monetary rewards work?

Monetary rewards can be extremely motivational in the right circumstances. For example, sales commissions are a highly successful way to motivate salespeople. However, I don’t recommend that managers use monetary rewards when implementing an awards program. Adding a financial element can send mixed messages and is more likely to cause employees to game the system. By including a monetary reward with an award that gives other benefits, like peer recognition, you encourage employees to think about the award in monetary terms and devalue the motivational impact of the award.

How can HR managers measure an awards program’s return on investment?

It’s a really hard thing to do. If you don’t do it in an experimental way, as this study does, you often won’t understand the impact of the program. You may not notice the spillover effects.

What guidelines would you offer to managers designing an awards program?

A corporate awards or peer recognition program that is designed to recognize an employee for hitting a certain goal should not offer compensation. Tying it to compensation sends the wrong message. When employees are asked to place a monetary value on recognition from peers and managers, they consistently state that they value it less than their actual behavior demonstrates. For example, an employee might say they would place a $50 value on the recognition from winning an Employee of the Month award, but academic studies have shown that the amount of increased motivation from the award in terms of salary would be two to five times that amount. Including money—or even a gift card—can actually devalue an award because it invites employees to make their own monetary calculation, which studies have shown people tend to undervalue compared to the award’s worth in terms of salary.

What lesson should managers take from your study?

The company we studied has a pretty diverse set of jobs, from salespeople to scientists, so the major lessons are transferable. The main difference between this program and others is that most awards programs award excellence rather than everyday behavior.

Joan Mooney is a freelance writer based in Washington, D.C.

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