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Do Incentives Improve Productivity?

by | Jun 21, 2022

do incentives improve productivity

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Why is it so hard to work when you have little motivation? It is no surprise that a lack of focus can cause less efficient work from employees, and create a less rewarding work environment. In turn, this can turn into a negative company culture, and high employee turnover. A myriad of factors affect productivity, but for an employer, the key consideration is how to help employees overcome this lack of motivation. One way to ensure that productivity remains high is by introducing incentives, which motivate employees to maximize their abilities for some sort of reward.

Employee Recognition

Sometimes all it takes is a little bit of recognition. If someone finishes a big project or accomplishes something noteworthy, a company-wide email can acknowledge all of their hard work. Some companies opt for the side of creating an employee of the month program. This encourages everyone to work hard, because no matter the output, someone will be recognized. It encourages friendly competition without directly making the employees compete for a single prize: every month, the winner changes. The promise of recognition makes people want to produce their best work and be noticed for it. 

Prizes and Rewards

What if recognition isn’t what employees want, or they have a higher need? If recognition isn’t the right direction for a company, tangible rewards like money or prizes can have the same effect. Just like in elementary school, when the best class got a pizza party, behavior is rewarded to encourage more of it. This style of incentive is known as positive reinforcement. That means that the desired behavior is encouraged by adding some reward on top. If one person hits some goal, they can be rewarded with a prize. Positive reinforcement works exceptionally well, far better than negative reinforcement, removing some reward to encourage a behavior, or either punishment, which attempts to minimize the non-desirable behavior. Introducing this kind of reward increases productivity.

Does it even work? Do incentives improve productivity?

A study conducted by the Incentive Research Foundation found that a properly constructed incentive program can increase performance by up to 44%. For an employer, that is a major difference in quality of work and product turnout. The implementation of a good incentive program communicates to an employee that that are valuable. Recognition and tangible rewards both offer meaning to an employee’s work, and engage people to participate in a challenge to prove (or improve) their quality of work. 

At companies that offer incentive packages, anniversary awards, and structural benefits, employers report higher levels of employee retention, satisfaction, and quality of work. The evidence suggests that in fact, incentives do improve productivity.

No matter, this must be taken with a grain of salt. Although incentives may provide a boost in productivity initially, they are not proven to create habits. Any behavior relies on the three key maxims of behavior – motivation, ability, and prompt. Incentives live in the motivation realm, but in order to make productivity a habit, there needs to be more attention on the ability, which in turn can improve motivation. Crucially, productivity relies on the difficulty level of the task at hand. If an employer diffuses the difficulty of a task across a few people, changing ability, and adding prompts into the workplace. Instead of incentives, consider an opportunity for employees to share their projects and roadblocks. Advertise heavily, and that way, every time they see a reminder of the meeting, they are reminded to improve their work so they have more impressive content to share with their coworkers. This practice transforms the reward from work for the employer to the feeling of success upon hardworking employees.

The key to encouraging recurring behavior in employees is by allowing them to do what they want to do, and matching those goals with employer driven ambitions. Incentives or rewards can be used to create excitement and help employees jump over the initial hesitation of onboarding a new project or behavior, but they lose reliability as time passes and the motivation becomes harder to implement.

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