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Advantages & Disadvantages of Employee Incentives

Attracting and retaining the top talent is an important priority for APAC countries, and employee incentive programs are a popular go-to strategy. However, while incentive programs can be incredibly effective, they’re not without their downsides. Let’s take a look at a few of the advantages and disadvantages:

21-Jun-2016

Advantages

To understand why incentives can be so powerful, just look at B.F. Skinner’s research on operant conditioning. To put it very simply, behavior that gets rewarded gets repeated. It would be nice if everyone gave it their all every day, but it’s a fact of life that people work harder – and smarter – when they know their increased efforts will have a direct impact on their wallets. Other advantages include:

  1. Healthy competition: Competitiveness is part of human nature. You can see that in even the very youngest children, with their less than humble bragging. However, this drive toward competition never stops, which is evident in the huge salaries paid to professional athletes. Employee incentives simply take advantage of the human desire to “win.”

  2. Clearly defined goals: Sticking with the professional sports analogy, athletes know what their goals are. They never have to wonder what their boss really wants them to do. Incentive programs lend a similar clarity to work objectives, and people are much more likely to achieve a certain goal when they know exactly what’s expected.

  3. Increased employee retention: Gretchen Rubin, author of The Happiness Project, once wrote: “Happiness is affected by [employees’] sense of control over their lives.” Incentive programs give employees a sense of control over their incomes. When they work harder and smarter, they see better results.

 

Disadvantages

Incentive programs also come with their own set of disadvantages:

Poor customer service: Sales-based incentives can motivate employees to sell customers products, and services they don’t need. For example, a mechanic who tells a customer they need a complete engine rebuild when all they really need is a battery charge.

  1. Built-in limitations: Incentives work best with repetitive tasks, and lose effectiveness quickly when the required cognitive skills increase. Incentives might encourage production-line workers to increase throughput, for example, but they’re more likely to produce stress among IT developers, engineers, etc. Focusing on productivity can negatively influence quality.

  2. Resentment: Incentives that are seen as unfair can lead to resentment, and undermine teamwork. Employees may resent coworkers who achieve goals with less effort (and fewer hours). When it comes to team-based incentives, employees may resent coworkers who are seen as doing less than their fair share. Incentives can also motivate employees to undermine each other’s efforts rather than work as a group to achieve company goals.

  3. Manipulation: There are many different metrics companies can use to measure “success”: sales, revenue, profit margin, ROI, etc. The metric that has the most impact on incentive pay will be the metric that gets the most attention – and that may or may not be in the best interest of the company. If sales are rewarded, employees may cut profit margins to drive sales.

There are definitely both pros and cons to employee incentive programs, and only you can calculate what works for your business. That’s why it’s so important to carefully evaluate these plans. This can go a long way toward minimizing the disadvantages while maximizing the advantages.

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