Holcomb, Diane IPT560 Non-Instructional Intervention 3/12/2006 What are incentive and rewards systems?

Incentives and rewards are generally agreed to be a subset of the broader category of compensation, which is given to an employee in exchange for work. Incentives are pay or other items given as a reward for performance, and can be monetary or non-monetary, in a variety of forms. Incentives and rewards can be a one-time recognition, or can be given over a period of time. The goal is to reward desirable performance, such as reaching an agreed upon sales goal, output target, etc., or to provide motivation to employees. The common idea may be that these would be monetary, such as a bonus, raise, or merchandise, etc, but there are many non monetary types, including time off, employee participation in goal setting and decision making, office space, and opportunities for advancement, to name a few. Do they really work? Deciding how to choose incentives and apply them effectively is a subject of controversy among the experts. Researchers such as Deci (1971; 1972) and Lepper, Greene and Nesbitt (1973) claim that tangible incentives destroy personal interest in work. Eisenberger, Rhoades and Cameron (1999) state that incentives should not be given for performance that would normally be achieved without them. (Stolovitch, et al., 2002). These issues were the focus for a one-year study done by Stolovitch, Clark and Condly, (September 2000-October 2001), and their findings were as follows: 1) Incentives do, in fact, increase interest and satisfaction for the employee. 2) Incentives greatly increase performance (Stolovitch, et al., 2002) Additionally, the study found that long-term incentive plans were more effective than short-term on performance gains, and incentive systems work equally well at increasing quality and quantity of output. What about setting the goal too high-wont that be de-motivating? Research into the goal setting has shown that there can be a fine line between a goal which effectively commands the workers to strive towards a difficult but attainable goal and a high goal which is perceived to be unattainable, which weakens the motivation of the employees. This can be explained by the Expectancy Theory, which hold that individuals will choose the level of effort with the greatest motivational force (likelihood of an attractive outcome) (Jack, 2001). If the belief in an attractive outcome is not present, then there is not a strong commitment to the goal. What has actually been shown, however, is that when certain conditions are met, higher goals can actually have a higher commitment level. The conditions are: 1) The employees must be in agreement with the goal and have a sense of commitment. Those who participate in the goal setting process perform at a higher level than those who goals are assigned by management. (Jack, 1998) 2) The connection between achieving the rewards and the goal is clear (Lawler 2003) What factors affect my choice of incentives? The idea behind using rewards to motivate employees and to achieve goals is based on the behaviorist idea that behaviors which are rewarded have a greater chance of being repeated. One issue that arises, however, is that each employee is different, and may react differently to the same reward. A Rolex watch, for example, could be very motivating for one employee, while another employee may feel slighted, preferring instead to receive time off after putting in all of those long project work hours. According to Susan Heathfield (2002), In my experience, recognition is scarce because of a combination of several factors. People dont know how to provide it effectively, so they have bad experiences when they do. They assume one size fits all when they provide recognition. Finally, employers think too narrowly about what people will find rewarding and recognizing.

Holcomb, Diane IPT560 Non-Instructional Intervention 3/12/2006 So how do I decide what to use? Given the information that incentives DO work, but that they can take a variety of forms, and that people are motivated differently (AND my level of failure is high if I choose the wrong incentive), how is it possible to choose a good incentive or reward? The following guidelines will help in establishing the correct incentive for the particular situation: 1) Begin with a set of clearly defined and agreed upon goals. Make sure that people understand what is expected of them. Decide what you want to achieve through your recognition efforts create goals and action plans that recognize the actions, behaviors, approaches, and accomplishments you want to foster and reward in your organization. (Heathfield, 2002) 2) Match the size of the reward or incentive to the performance. Many reward systems are designed with a basic flaw: the rewards are too small to capture the attention of people and make a difference in their motivation (Lawler, 2003). At the same time, the small, easy to administer types of recognition should not be overlooked. In between monetary reward cycles, it goes a long way to say Thank You, whether by a handwritten note to the employee, an inclusion in decision-making opportunities, or goal setting. 3) Use variety in reward systems. For example, there is often initial benefit from paying bonuses for money saving ideas, but after a time the suggestion boxes collect dust, and the motivation system has to be revamped to generate new interest. (Thiagarajan, et al., 1999) 4) Apply rewards consistently. People need to see that each person who makes the same or a similar contribution has an equal likelihood of receiving recognition for her efforts. (Heathfield, 2002) Just as important is to have a consistent plan for timing of rewards. If rewards are too infrequent and a scatter shooting approach is adopted, the link will not be clear between the rewards and the performance and performers will lose their motivation. 5) If you are not sure what your employees will find to be motivating, ask them! Monetary and non-monetary reward examples: Monetary Non Monetary (From Heathfield, 2002) (From Heathfield, 2002) Money itself: Salary, bonuses, cash, gift Written Words: thank you notes, letter of certificates appreciation, handwritten cards, post on employee bulletin board, note in company newsletter Gifts: Company logo merchandise such as Attention from Supervisor: Stop by to talk shirts, hats, mugs, and jackets, select items informally, provide frequent positive feedback, from catalog, exchange points for public praise at staff meeting, take employee merchandise or entry into a drawing. out to lunch. Symbols and honors: Framed or unframed Encourage Employee development: Send certificates to hang on the wall, engraved people to conferences and seminars, ask for plaques, larger work area or office, more and summary of seminar presented at staff better equipment, provide status symbols for meeting, work out a written development plan, your organization, benefits. make career development commitments and schedule. The work itself: Provide cross training opportunities, more kinds of work they like, opportunities for self empowerment, presenting at department or other meeting, opportunities to determine goals and direction, participation in idea-generation and decisionmaking. (From Thiagarajan et al., 1999) (From Thiagarajan et al., 1999) Salary: Base Salary, beginning salary, holiday Working Conditions: Celebrations and rituals, pay, market adjustment, overtime pay, choice of project, collegiality, flexible calendar,

Holcomb, Diane IPT560 Non-Instructional Intervention 3/12/2006 weekend pay flexible schedule, geographic location, informality, job enrichment, nature of work, organizational culture, size of organization, staff support, type of community, type of customer, type of industry, type of organization, workload. Training: Mentoring, on-the-job training, offsite training, professional conferences, professional development, training equipment, training facilities, training materials. Facilities, equipment and materials: Access to supplies, appropriate facilities, cafeteria, equipment-use training, ergonomically designed furniture, job aids and documentation, office size. Management: Access to information, compatible values, dynamic leadership, freedom to innovate, frequent feedback, lunch with a manager, participatory decision-making, participatory goal-setting, performance appraisal, recognition by manager. Career Opportunities: Career counseling, career ladder, committee assignments, entrepreneurial support, job security, job title, membership on an elite team, opportunities for promotion, patents, professional growth opportunities, royalties, tenure.

Differential pay: Merit pay, pay for knowledge, pay for length of service, pay for performance Allowances: Cost of living, clothing, entertainment, family, hardship, housing, relocation, training, travel. Deferred income: Investment trust, pension plan, profit sharing, social security, stock option

Other Perquisites: Childrens education, athletic leagues, automobile, cash and stock bonuses, club membership, commission, company apartment, expense account, financial and post retirement counseling, free or subsidized housing, free meals, gifts, legal service, liability insurance, loan, medical examinations, medical insurance, parking, physical fitness program, product samples, spousal travel benefits, survivor protection, tax services Loss-of-job coverage: Guaranteed annual income, outplacement assistance, severance pay, unemployment insurance. Time off with pay: Disability payments, family-illness leave, jury duty, maternity or paternity leave, military duty, personal leave, sabbatical, sick leave, vacation

Note: Keep in mind that there are advantages and disadvantages to any reward system, and the most effective way to use any of these items is to use variety and consistency in rewarding desirable performance. Case Study 1: Gotcha Awards: Recognition Improves Customer and Employee Satisfaction http://www.opm.gov/perform/articles/2000/jun00-2.asp At the Naval Hospital in Pensacola, Florida, a Gotcha! card system was adopted in June 1998 as part of an overall program to improve patient care. This system employees the use of a Gotcha card which the patients and employees fill out for hospital employees who provide excellent patient care and maintain a quality work environment. Every quarter the CO (commanding officer) holds an awards ceremony where those who have received three or more

Holcomb, Diane IPT560 Non-Instructional Intervention 3/12/2006 Gotcha cards are recognized, and are given a choice of mugs. T-shirts, other informal prizes, and sometimes receiving 4 hour increments of paid time off. There were 2400 nominations in the first year, and the program has been a success. The results have included increased recognition for staff, and increased patient and employee satisfaction. In fact, for the past 2 years the Hospital has received the highest rating on the Department of Defense patient satisfaction survey Case Study 2: Westfield Group Incentives Case Study (http://www.hrotoday.com/Magazine.asp?artID=1059) In 2002, the Westfield Group, a financial services company, felt that they were offering the best incentives employees could ever want: golf courses, gourmet meals, dry cleaning services and more. Feedback from employee surveys, however, showed that their employees were feeling under appreciated. Westfield was using a recognition system that was slow and often rewarded behavior long after the performance had taken place. They decided to call in an outside recognition consultant who helped them to set goals for a strategic recognition plan. The award process was automated so that the rewards were timely, but they also put emphasis on deciding what company values and behaviors are most valued, and put emphasis on rewarding those behaviors. Employees were also encouraged to nominate other employees for awards. This approach has worked from 2002-2004, employee turnover decreased 7.7%, employee satisfaction rose to 80% (vs. 70% from the year before), and, in 2004, 90% of the employees stated that they were extremely satisfied with the new program, and felt that their work was meaningful. Buzzwords/thoughts: "While money is important to employees, what tends to motivate them to perform and to perform at higher levels is the thoughtful, personal kind of recognition that signifies true appreciation for a job well done. (Nelson, 1997) Executive compensation Move from entitlement pay to personal responsibility/empowerment Loyalty pay (for length of service) Work/Life Initiatives Flexible Benefits Employees would rather have time than money Whos Who in Incentives and Rewards: Clark, R. E. Deci, E. L. Herzberg, F. Lawler, E. E. Locker, E. A. Pfeffer, J. Stolovitch, H. Books/Written Resources/References:

Holcomb, Diane IPT560 Non-Instructional Intervention 3/12/2006 Heathfield, S. M. (2002). The power of positive recognition. Retrieved Mar. 09, 2006, from http://humanresources.about.com/od/motivationrewardretention/l/aarecognition.htm.

Jack, J. M. (2001). A model for the use of contingency based rewards. Retrieved Mar. 09, 2006, from http://www.biworldwide.com/Home/cbrewards2.pdf. Lawler, E. (2003). Treat People Right! San Francisco, CA: Jossey-Bass

Nelson, B. (1997). The power of positive feedback. Workforce Performance Resources Newsletter, , .

Stolovitch, H. D., Clark, R. E., & Condly S. J. (). Incentives, motivation and workplace performance. Performance Newsletter, Winter/Spring 2002. Retrieved Mar 09, 2006, from http://www.hsa-lps.com/Performance_WS_2002.htm.

Thiagarajan, S. Estes, F., and Kemmerer, F. (1999). Designing Compensation Systems to Motivate Performance Improvement. Stolovitch and E.J. Keeps, eds. (1999). Handbook of human performance technology (pp. 411-429 ). San Francisco: Jossey Bass

Van Tiem, Moseley, & Dessinger. (2004). Fundamentals of Performance Technology 2nd ed. Washington, D.C: ISPI.