Incentives can have a powerful impact on behaviors – with the potential of driving both desirable and dysfunctional behaviors. This article explores approaches for rewarding goal attainment, and how incentives can influence individual behaviors.
Key consideration before settings reward
Impact on behavior
One of the key things to consider when setting rewards is the impact the reward is likely to have on individual behavior. Incentives can be very powerful and can be used to align employee goals of the organization with those of the firm.
Of course, rewards do not always drive desired actions, and it is important to consider whether there are unintended consequences associated with the rewards that are being set. The rewards may for example cause employees to become overly focused on these specific outcomes, not aligned with the firm’s overall objective. At the extreme, this may cause individuals to engage in deceitful or illegal behaviors, that while may allow the individual to ‘achieve’ the goal, may have a profoundly negative impact on the overall organization.
Impact if the targets are not reached
Beyond the immediate impact that a goal may have on motivating employees to reach the goals, it is also important to consider the post-goal impact. A failure to meet a goal, especially one associated with direct monetary returns for the employees, can for example result in loss of motivation. Employees may think ‘why am I even trying so hard if my best is not good enough’.
Impact on subsequent targets and expectations of rewards
It is also important to consider the impact that rewards may have in subsequent periods. Giving employees a big bonus one year may be great for morale in the short run, but it may set the expectation that similar rewards will be offred in subsequent periods.
Different types of rewards
Financial rewards are probably the most direct way of compensating for hitting a target – indeed in some areas end of year bonuses may be a substantial component of expected rewards. While cash may be the most direct form of compensation, stock is another alternative, potentially attractive for senior management because owning stock further aligns their interests with those of the company.
Praise and congratulations
While we may think of monetary compensation immediately when considering rewards, the most common type of reward though is simply praise and encouragement. Such psychological rewards are both free and can more influential in changing intrinsic motivation than direct financial incentives. Depending on the nature of the success, you may be able to celebrate it by sharing it on the company’s social media accounts.
Token of appreciation: Gift cards, wine, and other small rewards
A final type of reward is small tokens of appreciation – the sorts of gifts that while having little monetary value but can illustrate your appreciation for the effort. Sometimes small unexpected perks can brighten up someone’s day, and illustrate you valuing their effort.
One thing to however be aware of with small rewards is that they are not always appreciated if there is a large discrepancy between the reward and the effort that was required. Being ‘rewarded’ for weeks of pulling late shifts or hitting end-of-year targets with a $5 coffee card may do more harm than good. Similarly, you may be just as likely to decrease effort as increase it should you offer such targets in advance.
Key consideration before settings reward
Beyond the nature of the reward, there are further decisions that can impact how the rewards shape employee behaviors:
When the reward is communicated
Some of the above consequences are profoundly impacted by how you communicate the rewards to employees.
- Offering financial rewards in advance: This is possibly the most common approach to offering rewards – if employees are able to achieve a particular objective then they will receive the reward. Part of the reason why this approach is common is that it can directly drive performance – when employees have an incentive, they may in some ways change their behaviors to increase the likelihood of achieving the goals.
- Announcing rewards after the event: A different approach is to only announce the reward after the target has been achieved. While after the fact rewards won’t drive performance this time around, they may help celebrate the achievement, potentially driving subsequent behavior. This approach also has the benefit that you avoid the possibility of disappointment if a target is not achieved – since you have not promised a reward, individuals don’t feel as though they have missed out.
- Announcing rewards that are almost certainly attainable (or can be claimed have been met): Another approach is to only announce rewards for targets that are almost certain to be met.
The target level to receive the reward
A final consideration when setting rewards is the performance level that must be achieved to set the reward. While setting high or stretch targets has the potential of increasing employee motivation to meet the goal, it has the risk of disappointment or checking-out should the goal not be attained.