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Do rewards motivate people? Absolutely. They motivate people to get rewards.

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If you want to have an engaged, committed, and productive workforce, you need to reward your employees for good performance, right?

It may surprise you, but studies show that people who expect to receive a reward for completing a task typically underperform in comparison to those who expect no reward, particularly if the task requires sophisticated thinking. At the executive level, studies reveal a minimum or negative correlation between pay and performance, as measured by profitability and other financial criteria.

Whether it is a bonus scheme, an employee of the month badge, access to privileges or pay for performance, rewards bring one thing – temporary compliance. They are highly effective in changing people’s behaviour in the short run. But may create undesirable consequences in the long run.

Behaviourist theories derived from work with animals in laboratories are indirectly responsible for the way we understand rewards in the workplace. An employee of the month, bonuses, vacations, plaques, banquets, the lists based on rewarding one single desirable behaviour is limitless. Herbert H. Meyer, Professor Emeritus in the Psychology department at the University of South Florida observed: “Anyone reading the literature on this subject written 20 years ago would find those articles almost identical to those written today.” This translates into little change in how we understand good reward practices and limiting them to finding more sophisticated ideas of how to wave money in front of employees.

Do rewards work? The answer depends on how we define work. Research suggests that rewards succeed at securing one thing only, temporary compliance. When it comes to producing a long-lasting effect, they are failing big. As far as productivity is concerned, at least two dozen studies in the last 30 years unanimously demonstrated that people who are expecting a reward for completing a task do not perform as well as people who are not expecting a reward.

What is the explanation for this puzzling finding?

Pay rarely motivates

Deming’s declaration “Pay is not a motivator” may seem surprising, even absurd. Money buys the things people want and need. More than that, the lower the salary people receive, the more concerned they will be over financial matters. Even if people are concerned about their salaries, this does not prove that money is motivating. There is no basis for the assumption that if you pay people more, they will do better or more work. In all studies asking employees what is most important to them, money always comes in the middle of the ranking. Though cutting pay almost always damages morale, increasing it rarely will improve performance.

We do not say, under any circumstances that you should pay people poorly. We believe deeply that people should be paid fairly, but we also believe that motivation cannot be reduced to a paycheck.

Pay rewards easily turn into punishments

Most managers understand that coercion and fear generate defiance, destroy motivation, and increase defensiveness. Frederick Herzberg, one of the most influential psychologists, illustrated this: “a kick in the pants may produce a movement, but never motivation”, unfortunately, Herzberg’s observation is equally true to punishments and rewards.

“Do this and you’ll get that!” or “Do this and this will happen to you!” relies on the same psychological mechanism. Bonuses are highly desirable, but because they reward certain behaviour through external control, people often perceive them as a threat to their autonomy. So, paradoxically, they become a punitive actions. Furthermore, not receiving a reward, whether this reward is withdrawn deliberately or simply not given (but someone hoped to get it), has an effect, which is identical to a punishment.

Individual incentives destroy cooperation

As Peter R. Scholtes put it “Everyone is pressuring the system for individual gain. No one is improving the system for collective gain. The system will inevitably crash.”

The easiest and fastest way to destroy collaboration and teamwork is to force people to compete for rewards or recognition or to rank them against each other. For each person who wins, they are several people who have the feeling that they lost. If you start to look at your teammates as obstacles to achieving a bonus or recognition, you are less likely to cooperate and much more likely to engage in personal conflicts.

Incentives are sweeping the performance issues under the carpet

To do a good job, managers need to understand the reasons behind good or bad performance at work. Are the workers trained poorly? Can they collaborate efficiently? Are they burned out? Each one of these problems called for a different remedy.

Relying on incentives to temporarily boost productivity masks the underlying problems of the department or the company and prevents managers to take meaningful actions to solve them. Ultimately, pay for performance takes away the managers’ ability to manage properly.

External motivation damages meaning

When designing reward programs, most companies focus on a set of specific behaviours or outcomes that are considered beneficial. The side effect is that people will limit their behaviour only to the one that takes them closer to the reward, sacrificing other meaningful endeavours. Consider a salesperson that pushes customers to close unfavourable deals, achieving her target, but damaging customer satisfaction and loyalty. Or a doctor that is concerned about the number of patients that successfully undergo a procedure by denying treatment to severe cases that will benefit most from it. A lot of times what makes a job rewarding or meaningful – saving lives or making a difference in a customer’s life cannot be captured by conventional performance targets.

But if bonuses damage performance, why do so many executives continue to rely on reward programs?

We believe managers tend to evaluate short-term effects, which are much easier to quantify and lead to desirable changes fast. Unfortunately, in the long run, such an approach makes people less interested in their work per se. So, any effort will be conditional on the reward you get for it. Ironically, this makes managers shake their heads and say: “See, if you do not give them a bonus, they will not do anything.” It is a classical example of a self-fulfilling prophecy.

So, do rewards motivate people? Absolutely, they motivate them to get rewards.