Being motivated and engaged at work results in job satisfaction, work productivity, and organizational commitment. As such, many organizations have been offering employees performance-based bonuses, company profit-related pay, or share ownership. Sometimes, these incentives work perfectly as expected, but other times, they backfire. In an article for Harvard Business Review, Chidiebere Ogbonnaya, Kevin Daniels, and Karina Nielsen share their research on the subject. Their study indicated that performance-related pay was positively associated with job satisfaction, organizational commitment, and trust in management, while company profit-related pay did not have the same positive effects. When it comes to share ownership, a direct negative relationship with job satisfaction and no significant relationships with employee well-being were found.
Bonuses Should Acknowledge Employees’ Work Efforts
Rewards are all about matching the mentality of employees, and how you frame the meanings and the significance of the reward. Contrary to what many employers believe, profit-related pay and share-ownership may not generate positive effects, as they were found to have negative relationships with employee well-being. An exception to negative effects for profit-related pay is when distribution of organizational profits is perceived to be equitable. Profit-related pay and share-ownership may also leave a bad impression that employers only care about collective profits rather than individual contribution, and profit shares may be viewed unfair if the distribution process is not transparent. Performance-related pay was, however, positively associated with employee well-being, which makes sense because people feel individual pressure to work harder to obtain an individual reward.
On the dark side, the study found that experiencing pressure can negatively affect employees’ perception of job satisfaction, organizational commitment, and trust in management. Indeed, no one is happy having to work too hard and undergoing too much pressure. Performance-related pay can be a nuisance, or just insufficient considering the amount of work and the intensity level of the job. The authors conclude with this:
… our results regarding work intensity and individual-based incentive pay should give managers pause. In some circumstances, performance-related pay may be experienced as a burden that only provides extra pay for workers through an intensification of the work process. This raises critical questions regarding the extent to which individual-based incentives can influence employee well-being in a sustainable way.
You can view the original article here: https://hbr.org/2017/03/research-how-incentive-pay-affects-employee-engagement-satisfaction-and-trust