Using Money As An Incentive

My sister has three children and, like all mums, wanted them to get good grades. She resorted to monetary incentives to motivate them to do well. Reflecting back on what she did got me thinking about using money incentives at work. Incentive schemes are becoming an increasingly popular way of motivating employees to achieve superior results, so what do you need to consider if you are going toincentive schemes use money as an incentive?

Anyone with children knows that it's that time of year when you need to encourage them to revise hard so that they do well in their end of year exams. My sister obviously wanted her three children to do well in their exams. So three years ago, when her eldest son (Toby) started revising, she announced - in front of his siblings, his grandparents and me at the Sunday family lunch - that she would reward him if he did well. Toby’s teachers had predicted that he would get a mix of C and D grades, so my sister told him that he would get a bonus for every exam where he achieved more than a C, but she would also deduct money from his pocket money for every exam where he got less than a C. In other words she used a classic case of carrot and stick motivation!

Obviously, we all expected that Toby would be motivated to revise harder by the possibility of what could have been a substantial “bonus”. We were wrong. Toby did what many teenage boys did – he revised when nagged but skived as often as he could get away with it. The result was that he achieved the C’s and D’s predicted with just a couple of B grades - for which he was duly rewarded by my sister.

One year later and it was the middle daughter’s turn to sit exams. Having seen her brother being offered an incentive Alice didn’t wait for my sister to announce the exam grade incentive, but openly asked what she would get if she did well. The precedent had, after all, been set. Alice’s grades were predicted to be better than those of her elder brother, but my sister thought it would be unfair if she set Alice different targets. Anyway the long and the short of it was that Alice was set the same grade targets as her big brother, worked no harder than she usually did but still got significantly more money than him.

This year it is my sister’s youngest child, Sarah, who is preparing to sit her exams. Again the incentive scheme will run, but this time with a twist. Science is Sarah’s weakest area, so my sister has decided that Sarah will get a double bonus if she gets better than a C grade in her science exam. We will have to wait to see what her results are, but I’m not convinced that my sister's approach will work as last weekend when we sat down together for the family Sunday lunch it was obvious from my conversation with Sarah that she had “forgotten” about this incentive.

So what does this story about my sisters children have to do with work-based money incentive schemes? Well it reveals the three tricky issues that need to be addressed if these are to be effective:

1. You must have an exit strategy. if you start an incentive scheme you must make it clear that the incentive is for a set period of time only – or that it is discretionary.

2. Be careful how you set the targets that trigger the rewards. You need to be clear on what it is you want to incentivise and set SMART objectives that direct your employees actions and behaviours towards achieving these end results. You should also set targets that reward for superior performance.

3. Keep Communicating. For money incentives to work you need to keep communicating what they are and what people need to do to get them. Don't assume that an initial announcement is all that is necessary.