Monday, April 15, 2013

Employee reward scheme reduces productivity?

I ran across an interesting study of employee award programs. Award programs are often thought to be a low-cost way to trigger additional worker productivity (e.g., increasing output, reducing waste, reducing injuries). The Dirty Laundry of Employee Award Programs: Evidence from the Field revealed two types of unintended consequences when a reward-scheme was implemented in an industrial laundry plant.

First, employees gamed the incentive scheme. Chronically tardy employees amended their behaviour just enough to avoid disqualification for the awards, but were still tardy. When ineligible for a reward, they reverted to their prior behaviour. And employees were more likely to call in sick (rather than be tardy) to retain their eligibility for attendance-based rewards. This behaviour is not really much different than the well known effect of “injury-free days” programs, whereby workers hide injuries to maintain their eligibility for the reward.

Second, employees with perfect attendance or high productivity saw a 6-8% decrease in productivity. Although there was no relationship between productivity and the rewards (which were attendance based), the reward system appears to have negatively affected the intrinsic motivation of high performers (likely due to perceptions of unfairness).

Overall, the scheme saw a 1.4% reduction in productivity. This effect meant that the costs of the program were not covered by improved performance and, in fact, the program degraded overall performance. So much for a low-cost motivational tool! This study raises some compelling questions, both about the validity of basic models of worker motivation and the utility of "common-sense" HR tools.

-- Bob Barnetson

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