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ABANDONING PAY-FOR PERFORMANCE MYTHS IN FAVOUR OF EVIDENCE

Source | Mercer.com  |

One reason rewards do not perform as intended is that executives and the reward professionals who support them have relied time and again on a group of compelling myths when structuring programmes, despite longstanding, high-quality behavioural science research that calls these “principles” into question. This article makes the case against five persistent myths, citing research and reviewing case studies, and considers circumstances in which reliance on them is most likely to diminish productivity. The article’s objective is to encourage reward professionals to consider their own programmes and whether they are achieving intended objectives on a cost-effective basis. To make the case clear, consider a situation presented in the Journal of Legal Studies. 1 A child care centre wanted to reduce the number of parents who were late picking up their children. So the centre established fines for late pickups. Contrary to expectation, late pickups significantly increased after the implementation of the fines. When the fines were later abolished, late pickups remained at the new, higher level. What happened? Before the fines, parents who had personal relationships with the teachers were intrinsically motivated to be punctual. But the fines caused parents to redefine the situation from a moral obligation (“be fair”) to a financial transaction (“I can pay for extra time”), and once their perception of the situation changed, the previous motivator was not easily re-established. The bottom line: incentives are complex, and left untested, design “instincts” can be plain wrong. This example shows how oversimplistic thinking on reward can so easily result in unintended consequences and that there are great dangers in applying universal principles to reward. Each business situation is different and human behaviour is complex and difficult to predict. Each of our five myths has elements of truth, but in this article we show the damage that can be done if they are believed to apply in all situations.

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