Does Incentive Pay Change Behavior?

Next time a compensation consultant or a well-meaning human resource professional suggests that some form of incentive pay will motivate employee behavior, run do not walk, to the nearest exit. This statement may seem odd given how much our society has embraced the notion of incentive pay and other perks improving performance. Most of us were raised with the promise to "do this and and you will get that" or "do this and you won't get that". It is a part of our fabric.

But as adults, the notion of "do this and get that" can seem manipulative and people do not like the feeling of being controlled, no matter how desirable the outcome. The fact is, though, that no empirical evidence exists that proves that incentives in any form (e.g. bonuses, perks, time off, employee of the week, etc.) influence long-term behavior change. Now, incentives can and do influence behavior but only in the short term. But as soon as the incentive is removed, people revert to their previous behavior.

In fact more than 20 studies from social scientists illustrate that people who expect to be paid for performance actually perform less well than those who do not expect to be paid.

Incentives started in the 1930's

Incentives have their roots in the 1930s when a Harvard psychologist named B.F. Skinner conducted studies to determine if external motivators could cause behavior change. His subjects were rats and pigeons and his reward was food. The experiments worked and the idea, called "operant conditioning" was applied to people.

But more than thirty years of research since then has been unable to prove that incentives create long-term behavior change. However, the research did show a number of fascinating results:

1. Incentives can de-motivate if the employee views them as manipulative and believes that the reqard is being used to get them to perform work that is somehow undesirable ("if they have to pay me extra to do that, it must be pretty distasteful.")

2. Providing an incentive may have informational value by focusing on results desired by the company. And the information may motivate the employee.

3. Pay is seldom mentioned as an important motivator to people completing surveys on the topic; however, most people believe that other people are motivated by money.

4. In most work settings, people are interdependent making it very difficult, if not impossible, to accurately measure individual performance. In many studies, employees view pay for performance plans as arbitrary -- hardly motivational.

5. A 2004 study by Hewitt Associates, a major U.S. based human resources firm, found that 80 percent of the organizations believed that their pay-for-performance plans were not very successful or not successful at all.

The bottom line is that incentives are fashionable because it is easier to play with pay plans that to focus on the systems work required to build a high performance environment in which people are accountable and engaged.

Although the characteristics listed most often in a highly accountable, high performance environment vary slightly between authors and studies, most lists include:

• Continuing investment in employee training and development and a tendency to promote from within.
• A flat hierarchy in which status distinctions are downplayed and people believe their contributions are important.
• Decision-making responsibility is delegated so that people control how their jobs are performed and contribute to their fullest.
• Competitive pay is utilized to attract good people.
• Employees are given employment security and, in return, extend their own commitment to the firm. Both managers and employees value commitment.

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