Copyright 1999 by Workforce Magazine
Magazine: Workforce Magazine, 1999
Topic: Product Placement
Byline: Scott Hays

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Somewhere in corporate America, a human resources manager tweaks the company’s employee incentive program. Maybe she dumps last year’s idea of customized giveaways for this year’s weekend getaway packages, or switches from throwing an annual casino-awards party to discreetly handing out personalized thank you cards. What drives her is the theory that rewards and bonuses motivate employees to do their jobs better—dispense food to a rooster every time it pecks the piano and soon it’ll be playing Beethoven. But does anyone out there really know if these programs work?

Seven years ago, CEO and president Rob Rodin eliminated all individual incentives for the 1,800 employees at El Monte, Calif.-based Marshall Industries, a distributor of electronic components. To your average outsider, this may have seemed like a great way to cripple an entire workforce—take away the American Express certificates and Alaskan cruises and motivation drops faster than a helium balloon rises. Who wants to slog away at work if there’s no, well, food in the dispenser? Right?

Rodin analyzed the five-year earning potential of each and every employee, and then based on a formula went person-by-person and assigned salaries (the opportunity for profit sharing is the same percent of salary for everyone, based on the company’s performance). “It wasn’t as if we imposed communism, but our company was divided by internal promotions and contests. We weren’t working together with a common vision,” he explains. “Managers were fighting over the cost of a new computer because no one wanted to put it on his P&L, departments were pushing costs from one quarter into the next to make budget. Fundamentally, we eliminated these distractions. Now we have collaboration and cooperation among sales people, and between divisions and departments.”

And productivity per person has almost tripled, he claims.

Last month in Portland Oregon, president and CEO Mary Roberts discontinued a bonus program for the 200 employees at Rejuvenation, Inc., a company that manufacturers decorative brass lighting. In fact, the manufacturing managers begged her to discontinue the program because craftsmen were stealing parts from other craftsmen to meet quotas, and workers were pacing the production of lightening fixtures to get overtime, then working like maniacs to get production bonuses. “Incentive programs create competitiveness and that’s not necessarily best for a company like ours that’s growing,” says Roberts. “I personally don’t think people are motivated by rewards and bonuses. I think they’re motivated because they’re excited about their jobs or because they’re doing something that provides a service to the world.”

So then why do so many companies claim otherwise—that incentive programs, done effectively, improve a company’s advantage? “Personal recognition can be more motivational than money,” says Bob Nelson, author of “1001 Ways to Reward Employees” (Workman Publishing, 1994). “You can obtain from your employees any type of performance or behavior you desire simply by making use of positive reinforcement.”

At Dallas-based Texas Instruments (TI) Incorporated, for instance, recruiting and retaining employees is a nasty battle zone in the fiercely competitive semiconductor industry. For that reason, the company offers a unique and creative compensation package that includes bonuses and non-cash recognition that range from personalized plaques to country ranch parties, from movie tickets to golf lessons, from team shirts and jackets to footballs and train kits. The number of times an employee was “recognized” between 1996 and 1997 jumped 400 percent from 21,907 to 84,260 (a few of these, though, were multiple hits).

“Our managers wouldn’t use a non-cash recognition program if it didn’t bring value to the employees,” says Kathy Charlton, TI’s manager of workplace vitality. “We’re part of an aggressive industry. Our people work hard and long hours. Rewards make a difference in their attitudes and performance. Hey, everyone has a need to be recognized, and not just once a year when there’s a formal review process. And when recognition is tied to effort, you end up getting more bang for your buck.”

All in all, TI received 900,000 bucks worth of bang on its non-cash rewards in 1997.

Do Rewards Undermine Corporate Goals?
It’s wildly unrealistic to assume that all incentive programs work. Or that by taking away individual rewards, productivity per person will triple. Maybe that’s why commissions and bonuses and other rewards programs seem always half-assembled—no one yet has figured out how to build {the perfect beast}. Even though TI’s Charlton emphatically defends her company’s incentive programs, she has never conducted a survey that links motivation and productivity to non-cash rewards. And though Marshall’s CEO Rodin loves to trumpet his company’s new non-incentive system, some naysayers still tell him he’s crazy, that salespeople, for example, won’t perform without commissions.

Yet according to a 1996 survey sponsored jointly by McLean, Virginia-based Wirthlin Worldwide and Salt Lake City, Utah-based O.C. Tanner, 78 percent of CEOs and 58 percent of HR vice presidents say they have rewards programs that recognize performance or productivity. Perhaps more noteworthy, two-thirds of CEOs and HR VPs say that their interest in service awards is holding constant, while about one-quarter of each group indicates that interest in these service-awards programs is increasing. “If you want to impact the bottom line, you must invest in people, and not just with money either, but also with recognition rewards,” says Steven Kimball, director of communications with O.C. Tanner, a provider, it should be noted, of corporate service/recognition award programs.

Although there’s no empirical evidence that can be drawn from the survey as it relates to an actual increase in productivity and performance based on individual incentives, “It’s a matter of common sense and motivation theory that’s been with us forever that says people work for more than just a paycheck,” says Kimball. “That should be proof enough.”

It clearly wasn’t proof enough for Rodin of Marshall Industries or Roberts of Rejuvenation. That’s the problem with anecdotal feedback—it’s hard to get a real handle on the true measure of things.

John Parkington is practice director of organization effectiveness for the San Francisco, California-office of Watson Wyatt. He says that during the last 15 to 20 years, companies focused way too much on measuring efficiency and production, and in the process weeded out anyone with entrepreneurial spirit. In other words, if you wanted to speed up the assembly of, say, decorative brass lighting fixtures, and you weren’t too particular about quality, workers would meet their quotas for a financial incentive. But that’s not exactly what employers today want. Today, they want someone to design software that will speed up the assembly line.

But so the new economy demands that employees at every level be creative problem solvers, and this is where it gets sticky for managers to design strategies for creating high-performance organizations. “Now companies are asking themselves: 'What can we do to reward people for solving problems, for being innovative, and for growing the top line,’” explains Parkington. “Managers have to be smart enough and inventive enough to figure out new ways to reward their employees for this sort of behavior.”

But can you get this kind of thinking from your employees by offering them team shirts and train kits?

Parkington believes that if you want people to take appropriate job-related risks, then certain conditions must be met by an organization: you have to let your employees know what you expect from them, you have to give them support and encouragement, you have to provide the resources for innovation, and you have to offer them reward with perceived value, otherwise it’s worthless. But even Parkington can’t make the link (other than anecdotal) between an increase in motivation and creating thinking to non-cash rewards.

Now, it is endlessly documented that money isn’t the only reason why people work. The Loyalty Institute of Aon Consulting in Chicago, for instance, recently surveyed 1,800 employees who ranked the influences that most kept them committed to their companies. Pay ranked 11th, behind such things as open communication with managers, ability to challenge the status quo, and opportunities for personal growth. Money is especially weak when it comes to driving employees to become more creative in their thinking.

Non-cash rewards are no different, says Aflie Kohn, one of America’s leading thinkers and writers on the subject of money as motivator. He believes the reason why these programs can’t work is because they’re based on a totally inadequate understanding of human motivation. One of the most thoroughly replicated findings in social psychology, he claims, is that the more you reward people for doing something, the more they tend to lose interest in whatever they had to do to get the reward. And when interest declines, so too does quality. “You can get people to do more of something or faster, for a little while, if you provide them an appealing reward. But no scientific study has ever found a long-term enhancement of the quality of work as a result of any reward system. Bribes and threats can get you a short-term effect, but that’s it.”

Kohn says rewards might actually damage quality and productivity, and cause employees to lose interest in their jobs.
Why?

• Rewards control behavior through seduction. They’re a way for people in power to manipulate those with less power.
  
  
• Rewards ruin relationships. They emphasize the difference in power between the person handing out the reward and the person receiving the reward.
  
  
• Rewards create competitiveness among employees and can have damaging effects on collaboration and teamwork.
  
  
• Rewards reduce risk taking, creativity, and innovation. People will be less likely to pursue hunches for fear it may jeopardize their chances for a reward.
  
  
• Rewards ignore reason. A commission system, for example, may lead a manager to blame the salesman when he doesn’t make his quota, when the real problem may be the packaging or pricing.

“Managers typically use the rewards system because it’s easy,” adds Kohn. “But it takes no effort, no skill, and no courage to dangle a doggie biscuit in front of an employee and say 'Bark and this will be yours.’ On the other hand, it takes real talent and courage to create a workplace where employees feel important, where their work matters to them, and where they care about each other—without using a rewards system.”

To Dangle the Carrot or Not, That is the Question.
Cara Finn is vice president of employee services at Mountain View, Calif-based Remedy Corp., a software company that builds and distributes applications for business processes. In order to stay ahead of the curve in the highly competitive Silicon Valley area, her company over the last four years has doled out to its 750 employees incentive rewards ranging from American Express gift certificates to spot bonuses and movie tickets. Only recently has Finn structured a “quality of life” program wherein employees receive rewards after they’ve been with the company three, five and seven years. “You can’t separate longevity from performance,” she says. “If an employee has been with our company for three years, he’s performing.” And because Remedy is a publicly-held company with its ups and downs, Finn believes rewards also help to even things out. “We hold tightly to the philosophy that rewards are good, but they should neither be a deterrent nor a reason for someone leaving or coming to our company.”

Of course, there’s an obverse way to make incentive/rewards programs appear to be more than just clever low-concept remakes of the traditional programs of yesteryear. But it still doesn’t address the issue of whether these programs work or not, which makes it hard for managers to know which way to go. The suggestion coming out of the Chicago-based National Association of Employee Recognition is to change your corporate culture and use positive reinforcement on a daily basis to transcend traditional programs that can feel manipulative, says Kimberly Smithson, the organization’s president.

Or you can take the suggestion of Barry LaBov, CEO of the Fort Wayne, Indiana-based LaBov & Beyond, a marketing communications company. “People are people and they want to be recognized,” he says. “The programs that fail revolve around rewarding performance that doesn’t support company goals. Improving sales performance, for example, is not enough. Today you have to have programs that support such issues as profitability, loyalty, customer satisfaction. And you have to do it without alienating other people within the organization.”

If you’re one of those people who still can’t take it as gospel that the more you reward an employee the more he or she gets innovative and creative—because it’s not just about the money in the first place—then maybe you need to listen to Alfie Kohn, who admits he has no management experience but still firmly believes there’s a solution to all the madness surrounding employee incentive/rewards programs. Sure you can motivate people with a carrot and stick, he says, but motivate them to do what? Are they working for the long-term interest of the company or for some short-term personal goal? “Rewards are a matter of doing things TO employees. The alternative is working WITH employees and that requires a better understanding of motivation and a transformation in how one looks at management.”

And how do you transform how one looks at management?

Kohn quotes from management theorist Frederick Hertzberg who said, “If you want people motivated to do a good job, give them a good job to do.” Create an organization where people feel a sense of community, maximize the extent to which employees are brought in on decisions large and small, and dump your company’s rewards program. “If you pay well and pay fairly, you can get people’s minds off money and on their work.”

Of course, the abolition of commissions and other reward programs does not guarantee quality. In the end it takes real talent, time and courage to create a workplace where employees feel important, where their work matters to them, and where they care about each other. Good management is like good teaching it’s a matter of helping people do their best. But this too takes effort and thought and patience and talent—with or without an incentive/rewards program.