Show Me the Money!

How Different Incentives Work Differently

By In Weekly Email 5 minute read time

Show Me the Money! How Different Incentives Work Differently

The Problem & The Question

Tom Cruise and Cuba Gooding Jr. gave us this epic clip.

But does Showing Me the Money really work? The truth is that pay-for-performance programs often grossly underperform expectations. 

Two scholars set out to understand why pay-for-performance fails to live up to its lofty goals and how other motivator tools, such as positive recognition, compare to money as an incentive.  To catch more, bring your doctorate with you and check out their study here.

Theory & Practice 

The authors suggest early that pay-for-performance is broken because we don’t implement it right.  Essentially, companies just haphazardly launch pay-for-performance policies and let the employees figure it out. 

These researchers contend that if leaders or supervisors discuss the payout for increased performance and provide on-going coaching about the program, results would be higher.  Even more, when leaders reinforce the payout with employees and how specific actions or behaviors are likely to trigger higher critical performance gains, the effects of pay-for-performance would be significantly better.

But payouts cost money.  And companies can’t always stroke the check.  So, the researchers sought to compare how social or public recognition and individual performance feedback compared against the Greenback, in terms of motivation and performance.  The thinking goes that social recognition helps with status and, since we compare ourselves to others, can offer us psychic benefits that will drive performance.  Also, social and public recognition can also serve as a cue for money and promotions in the future.  Essentially, praise precedes promotion and pay raises.

Individual performance feedback, the thinking goes, provides us more clarity on how to do our jobs.  For that reason, alone, it should lead to better performance.   

The Samples and Measures

The authors of the study descended upon a large company with 7000 employees scattered across several facilities.  They divided 182 employees into one of four conditions. 

The first group of employees were told that they were going to get supplemental pay for increased performance.  That’s it.  Nothing else. 

The second, third, and fourth groups got supervisory engagement.  All of these supervisors received training in behavioral management.  Accordingly, they were trained to identify critical behaviors that would impact performance and engage their workforce. 

But here’s the rub…These groups differed in what was offered in return.  In the second group, employees got supervisory engagement plus incentive pay.  In the third sample, the employees got supervisory engagement, no incentive pay, put social recognition.  In the final group, the employees got supervisory engagement, no incentive pay, but individual performance feedback. 

We Now Open the Kimono!

The findings are intriguing.  The first condition of just launching a pay-for-performance initiative, without anything else, improved performance 11% from the baseline numbers. When supervisory engagement and behavioral modification and coaching was used, the improvement was almost 31% against baseline performance!  So, for sure, how pay-for-performance is implemented clearly matters. 

It’s not all about the money, though.  In the scenario where employees were given social and public recognition, performance increased 24% compared to the baseline where no recognition was given.  And individual performance feedback from the supervisor, which costs nothing either, improved performance by 20%. 

There are two main takeaways here.  Notably, when supervisors learn basic behavioral management training and integrate that with pay-for-performance initiatives, results are greatly enhanced.  Second, some of the best things in life are, indeed, free.  Social recognition and individual performance coaching require a time investment, but not a financial one, and they still seem to drive performance.  The authors remind us, though, that this was for rather simple work for hourly employees.  The authors wonder aloud if the same would be true for pay-for-performance at the managerial or executive levels.  Consider that your legal disclaimer.

Anyway, we all know that the Kimono makes you smarter.

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Written by Jay

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