Costly Consequences of Employee Award Programs

Costly Consequences of Employee Award ProgramsCostly Consequences of Employee Award Programs

More than 80% of companies use award programs like “Employee of the Month” and “Top Sales Club” to motivate employees and increase performance. While the conventional wisdom is that such awards are cheap and can provide a subtle way to motivate employees, these programs might be reducing firms’ overall productivity, according to a new study led by a researcher at the University of California, Riverside.

Recently accepted for publication in the journal Organization Science, “Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment” is the first academic study to show that seemingly innocuous non-financial award programs can be costly to firms, primarily because they can upset the status quo and influence perceptions of equity and fairness.

This can lead to internally motivated employees becoming disenfranchised. The study was led by Timothy Gubler, assistant professor of management in UCR’s School of Business Administration, together with Ian Larkin from the University of California, Los Angeles, and Lamar Pierce from Washington University in St. Louis, Science reported.

“The common knowledge is that non-monetary awards can subtly motivate people in ways that are fundamentally different to financial reward programs, such as by increasing organizational loyalty, encouraging friendly competition, or increasing employees’ self-esteem,” Gubler said. “In fact, past research has focused almost exclusively on the benefits of these programs, and the costs have been considered negligible.”

To explore the potential downsides of award programs, researchers used field data from an attendance award program implemented at one of five industrial laundry plants in the Midwest United States. With the plant relying heavily on worker efficiency for overall productivity, the program was designed to recognize all employees with perfect attendance -- defined as coming on time to work and not having any unexcused absences.

Each month, employees with perfect attendance were recognized at a plant-wide meeting, with one person receiving a $75 gift card through a random draw.

Researchers found that, reward-motivated employees responded positively to the awards by reducing tardiness, but gamed the system to maintain eligibility using sick days and reverted back to poor attendance behavior when they lost eligibility in a given month.

The awards crowded out intrinsic motivation in internally-motivated employees, who were already performing well by coming on time in the absence of rewards. These employees had increased tardiness after the program was implemented and they lost eligibility. The awards decreased motivation and productivity for internally-motivated workers, suggesting these employees were unhappy because of fairness and equity concerns.