woman browsing on the internet

Incentive programs are effective tools for motivating and engaging employees. Stock options, pensions, and bonuses, as well as additional incentives like free or low-cost meals, remote work, flex time, and other work-life balance advantages, encourage your staff to perform at their best (as does their normal wage).

Incentive programs, on the other hand, may have the unintended effect of diverting your workforce’s attention away from your organization’s objectives.

Fortunately, there are a few ways to keep incentive programs running smoothly so that they accomplish their intended goal and keep your company going ahead. However, in order to properly execute these tactics, you must first grasp some of the benefits and drawbacks of incentive programs:

Advantage: boosted productivity

Offering extra money or bonuses in exchange for meeting particular performance goals is a proven strategy to increase staff productivity. While not every employee will react to financial incentives in the same way, building a system that rewards individuals for achieving specific goals promotes the notion that hard effort will be recognized.

Such systems are simple to understand and reward workers fairly by putting a premium on performance over more arbitrary metrics. High performers have an incentive to assist low-performing colleagues improve when prizes and recognition are given at the team level, which may increase total team productivity over time.

Advantage: It strengthens the succession pipeline

Employees will frequently make an attempt to develop their abilities in the process of achieving performance rewards. Development allows employees to accomplish their tasks more successfully and place themselves in a better position to achieve performance objectives, whether they obtain these skills via experience or through training programs.

This practice is beneficial to the business since it may increase the candidate pool for succession circumstances, preparing high-potential individuals even when promotion opportunities aren’t available right away.

Advantage: It promotes retention

Employee work satisfaction and general loyalty to the company are enhanced by a successful reward program. It might deter people from looking for another job if it is properly structured.

When employees think they are underpaid or underappreciated, they often explore for other job possibilities. Employees are more likely to stay motivated, involved in their job, and loyal to their company because incentive schemes reward actual results.

Con: May encourage deception when workers discover that their present level of performance is insufficient to meet the incentive milestone, results-driven incentives might spiral out of hand

Employees may search for methods to make their performance seem excellent even if their real outcomes are not aligned with the incentive objective in certain instances, and the positive incentive may become a “negative” incentive.

In 2014, in the Phoenix Veterans Affairs Health Care system, VA hospital management devised an extensive strategy to fake patient wait statistics for over 1,400 patients rather than allow their bad performance to be publicized.

Incentives are misaligned, which is a disadvantage

It’s critical that the incentive program’s performance targets be correctly matched with the company’s long-term objective. A well-designed incentive program promotes and rewards conduct that leads to long-term success; a badly designed program may encourage workers to participate in dangerous and irresponsible activity that eventually weakens the business.

For example, in the early 2000s, banking sector compensation were related to short-term goals that were not aligned with long-term goals or the best interests of clients, encouraging risky behaviors that led to the 2008 financial crisis. Monitoring and establishing internal controls aid in the early detection of such misalignments, allowing for fixes to be made before issues arise.

Contrary to popular belief, this may result in conflict

While incentive systems are fair in that they explicitly identify targets that everyone may achieve, it’s all too easy for workers to believe that earning rewards is a zero-sum game. Either they pursue their goals and are rewarded, or they make sacrifices to assist others in achieving their goals.

This “watch out for number one” mindset is frequent in toxic settings, where workers feel like they’re competing for a limited amount of attention and compensation. It may lead to bitter animosity, charges of favoritism, and sabotage activities that damage team achievement while pursuing individual ambitions if left unchecked.

People may engage in inappropriate conduct just to achieve a performance objective, which may exacerbate an already stressful conflict scenario.

Performance incentive programs may be very valuable to a company, but they must be executed correctly in order to minimize possible complications. Continuous input from consumers and workers may assist determine how effectively these initiatives are doing.

When a problem is brought to the notice of an organization, it should be addressed immediately and as transparently as possible so that workers are aware of the program’s objectives and goals.

Thanks to Rick Lepsinger at Business 2 Community whose reporting provided the original basis for this story.