4 Reasons Why Employee Rewards Don’t Work

Many small-business owners think giving cash rewards to employees is the ultimate motivator. They couldn't be more wrong.
October 30, 2013

Many small-business owners think that the formula for getting peak performance from their employees is simple: Tie cash rewards directly to narrowly defined performance goals. They couldn't be more wrong. Below you'll find the four main reasons this never works, and four strategies that do.

It’s shortsighted. Giving a reward may provide a short-term boost in productivity to achieve a specific target, but employees then have the tendency to ignore the rest of their job's responsibilities (and the majority of the reason they're getting paid). The reward doesn't stick with employees either. A study by World Incentives found that “50 percent of employees who receive cash awards either did not remember what they used the money for, or used it to pay down credit card debt.”

Many goals simply can’t be defined objectively. Not everything can be tied to a number. Many small-business owners try to put every goal into a complicated numerical formula. This only serves to confuse employees and, ultimately, motivates no one. Alternately, if achieving the goal is subjective, it becomes less of a motivator since the employee will think that the manager will not give out awards fairly.

The top motivator is not money. Many studies show that in the list of what motivates people, money never comes out on top. A study published last year by German and Swiss researchers found that gifts were far more motivating to employees than cash bonuses, and that the thought and effort of bosses mattered more than the actual incentive. In the study, cash was simply sent in an envelope to some employees. To others, it was delivered as “a five-Euro note folded into an origami shirt and a two-Euro coin with a smiley face painted on it.” The origami money-gift generated the highest increase in productivity by employees.

Employees will “game” the program. Some team members will always find ways around the rules. They will try to fix the odds in their favor. They will focus on the prize and not the work required to get it.

Better Options Than Cash

Pay above-industry salaries. These will be appreciated by the employee and will serve as “golden handcuffs” for them to stay at the company. People realize that they're making more than their peers and will work hard to earn their compensation and stay on the team.

Timely praise or attention from managers. As Ken Blanchard says, managers are motivating when they “catch an employee doing something right.” Give feedback in a timely fashion and address employee suggestions and concerns each week.

Give employees a chance to participate in making decisions. Most people don't want to be told how to do something, but instead want a voice in deciding how it gets done. When they have a chance to exercise their own judgment, they will be happier and ultimately more successful.

Create a community. When employees feel they're part of something bigger than themselves, they'll work hard for the collective goal. Most people are actually happiest when they sacrifice for others to achieve a higher mission.

How do you motivate your employees to do their best work?

Read more articles on employee morale.

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