6 Rules for Employee Rewards & Extrinsic Motivation

Extrinsic Motivation

In 2001 American energy and services company Enron collapsed into bankruptcy. Apparently, its managers liked their bonuses more than they liked the truth, and their own paychecks were more important than the success of the company. Parmalat, WorldCom, Madoff, AIG, Barings… corporate history is littered with the remains of organizations that allowed individual greed and egos to outgrow the solvency of the company.

Money makes the world…

Rewards are among the trickiest and least understood tools in management. When applied in the right way they can generate significant results.

Unfortunately, many managers still assume that money is the best way to make people work harder, longer, or more efficiently. And they also think money works best when implemented as a financial bonus. Stupid, because both assumptions are wrong.

Scientific research teaches us that incentives for performance actually work the other way around. The anticipation of a reward (money or something else) works contra-productive since it kills people’s intrinsic motivation. People no longer do things for the joy of the work. It isn’t a good feeling about a job well done that they are expecting anymore. They are expecting a reward. It’s called the overjustification effect.

Invitation to cheat

And there’s another problem with bonuses. Since people’s focus is on “getting a reward” instead of “doing a good job”, it increases the risk of cheating. Rewards based on outcome encourage people to take the shortest path to that outcome. Bad behaviors with dysfunctional side-effects undermine the organization’s performance, while the employees walk away with a bonus. Or worse, with their colleagues’ pension funds.

Taking the widespread use of bonuses in account, we can draw a sad conclusion: One of the biggest problems in the world is transferring the managers’ focus from extrinsic to intrinsic motivation.

- Extrinsic Rewards Source

The 6 Rules for Rewards

As I wrote yesterday, handing out rewards to employees is often implemented through bonuses. A contra-productive method that (usually) does more harm than good.

Fortunately, there is some good news. Rewards that trigger intrinsic motivation are more effective and cost way less. Such rewards can work for your organization, and not against it. Just make sure you take the following six rules into account:

1. Don’t promise rewards in advance.
   Hand out rewards when people don’t expect them, so they do not change their intentions and focus on the reward. When acknowledgement of good work comes as a surprise, research says intrinsic motivation will not be undermined.
   
   
2. Keep anticipated rewards small. If you cannot prevent people anticipating a potential reward, keep the reward small (and make sure they know it’s small). Why? Because the anticipation of a big reward is likely to decrease people’s performance. This might be because the stress of anticipation will interfere with people’s working memory.
   
   
3. Reward continuously, not once. Every day can be a day to celebrate something. When people do useful work all the time, there’s always an opportunity for a reward.
   
   
4. Reward publicly, not privately. Since the goal of giving rewards is to acknowledge good work, and have people enjoy it too, everyone should understand what is rewarded and why. Therefore a regular public reminder works better than an annual private one.
   
   
5. Reward behavior, not outcome. Outcomes can be reached by a shortcut, while behavior is about decent work and effort. So focus on good behavior to learn people how to behave. When you focus on desired outcomes, people may learn how to cheat.
   
   
6. Reward peers, not subordinates. Find a way for people to reward each other, because peers often know better than managers which of their colleagues deserve a compliment.
   
   

These six rules for rewards give you the best chance at increasing people’s performance and engagement, while encouraging intrinsic motivation instead of destroying it. In my experience, an incidental compliment during a meeting for a job well done satisfies all six criteria.

It’s not that difficult to make rewards work positively for your organization. And if you do it well, it’s more enjoyable too.