Award Programs Can Have Unintended Consequences

Employee award programs can be powerful motivators, but poorly designed ones can lead to unint​ended and negative consequences that can reduce their value and effectiveness.

In a Feb. 11, 2013, Harvard Business School working paper, The Dirty Laundry of Employee Award Programs: Evidence From the Field, researchers found that even simple programs can have broad and complex employee-behavior implications.

Lamar Pierce, Ph.D., associate professor of strategy at Washington University in St. Louis’ Olin Business School, wrote the paper with Olin doctoral student Timothy Gubler and Ian Larkin, Ph.D., an assistant professor at Harvard Business School.

“An award program is not a simple cookie-cutter policy you can stamp into your company,” Pierce wrote in an e-mail to SHRM Online. “You need to think carefully about the intended and unintended consequences, because there are frequently many.”

They’re Not All ‘Free’

Historically, research into award programs, published largely in HR management literature, has focused almost exclusively on the positives, making such initiatives seem like a “free” way to motivate employees.

“I think we don’t hear about all the one-off awards programs that companies try and fail,” Pierce said. “But my sense from talking with people in a lot of companies is that these things are frequently implemented in a simple way that is not positive.”

How the Program Worked

In the study researchers used data from an attendance award program in place at an undisclosed private commercial laundry facility in the Midwest. The program worked like this: Each employee with perfect attendance for a given month (defined as not having any unexcused absences or arriving more than five minutes late for any shift) was entered into a drawing for a $75 gift card to a local restaurant or store.

On the first Tuesday of the following month the plant manager held a meeting with the entire plant at which all award-eligible employees put their name into a hat, and the previous month’s winner drew one new winner.

Though there was only about a one in 15 chance of winning the $75 each month, “the award brought significant recognition from management and peers,” the authors wrote in the study. After six months the plant manager held another drawing—for a $100 gift card—for all employees with perfect six-month records.

While the award program reduced the average employee tardiness rate, it led to a host of spillover effects that the plant manager said management didn’t consider when designing the program—effects that, ultimately, the study suggests, decreased the plant’s productivity by 1.4 percent.

• Employees “gamed” the program, improving their timeliness only when they were eligible for the award, and strategically calling in sick to retain eligibility.
• Two highly valued groups—employees with perfect preprogram attendance and those with high productivity—decreased their productivity by 6 to 8 percent after the program was introduced, suggesting that “they were demotivated by awards for good behavior they already exhibited,” the authors wrote.

The researchers said this suggests that awards for one type of behavior have the potential to “crowd out” positive behavior in a completely different realm.

They said the research also suggests that programs, if improperly implemented, can demotivate employees to exhibit pro-social behavior, such as punctuality or uncompensated productivity. If workers view the award as just another form of monetary compensation, they will begin to act pro-socially only when explicitly rewarded for it.

“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,” according to the paper.

Do’s and Don’ts for Programs

When designing an award program, having a multifunction discussion that includes HR, production and sales managers—and even nonmanagers—is key to uncovering positive and potentially negative consequences.

• Think carefully about how the program will motivate both winners and losers. “Motivating the winners is not worth it if you demotivate the losers,” Pierce said in an e-mail.
• Make sure employees believe that the award is fair, as fairness is fundamental to human behavior. It’s risky to use money as the reward because awards that come with a cash bonus can translate into “pay for performance,” Pierce noted. Substituting gift cards or points can dramatically reduce this risk.
• Avoid programs that employees can take advantage of. These may include salespeople bunching or discounting sales or, in the case of the recent study, employees strategically using sick days.

Ownership and HR’s Role

Russ Frey, marketing director at The Maritz Institute—the research arm of Maritz Inc., which designs and runs employee-recognition and reward programs and customer-loyalty programs—said in an e-mail interview that ownership of motivational programs varies. When the initiative’s focus is employee or workforce behaviors, “HR is an important, if not the primary, stakeholder,” although such a program often involves active sponsorship from leaders throughout the organization.

Forward-looking programs focused on performance goals such as sales growth or operational excellence generally are owned by the functional leaders most responsible for outcomes, Frey added.

Besides sponsoring initiatives, HR can help ensure that programs designed to motivate desired employee behavior—whether recognition-oriented or targeted at specific performance goals—are well aligned with corporate objectives and values.

It’s also important, as the study demonstrated, to ensure that any program engages people “in ways they consider to be both meaningful and fair,” Frey wrote.

More Recommendations

To increase the potential impact of a rewards program, Frey recommends the following:

• When discussing a potential initiative, consider calling it a “motivation,” rather than a “rewards,” program. Doing so can help the person or team designing the program avoid a “do this and (maybe) get that” approach and think instead about how to make every aspect of the program more motivating, Frey explained. “If the designer adopts a broader frame, she’ll think about how to create awareness, goal commitment and progress feedback strategies that can be, by themselves, rewarding to the program participant. So it’s not only about rewards.”
• Don’t build a program using only approaches and rewards you personally like. Your audience may not find it nearly as compelling. “Bring the voice of the participant into the design process,” Frey wrote. Provide reward options that appeal to a diverse group of employees.

In the end, Frey said, remember that “people are complex, and we tend to do things for our own reasons—not necessarily the reasons that others may assign to us. Because sound program designs are underpinned by a science-based understanding of human behavior, it’s essential for the program designer to bring this knowledge to the table.”

Pamela Babcock is a freelance writer based in the New York City area.