Canadian HR Reporter

RECOGNITION By Melissa Campeau C ould your low-cost employee re- ward program actually be hurting your bottom line? Yes, according to a recent study out of the United States. While popular belief holds that reward programs such as "Employee of the Month" and "Top Sales Club" are inexpensive ways to subtly motivate workers, researchers at the University of California, Riverside found they might actually be reducing organizations' overall productivity, if not implemented with care. " ese programs don't bear the costs of traditional incentive or compensation sys- tems, so a lot of organizations see them as having very few downsides," says Timothy Gubler, assistant professor of management at the university's School of Business Ad- ministration, and lead on the study Moti- vational Spillovers from Awards: Crowding Out in a Multitasking Environment. Up until now, research in this fi eld has focused mainly on the unintentional down- sides of programs that tie monetary reward with performance. Studies have found such programs can result in diminished intrinsic motivation, can cause workers to lose focus on any tasks not part of the fi nancial reward system, and can result in workers "gaming the system" to win at all costs, according to the study. Non-monetary award systems (such as gift cards or a worker's name on a plaque as employee of the month), on the other hand, have long been considered free from these negative side eff ects, says Gubler, and many employers use programs like these in the hope of encouraging loyalty, friendly competition or building employee self-confi dence. However, the costs of non-monetary awards programs can actually be quite high, according to the study by Gubler, Ian Larkin, assistant professor of strategy at the Univer- sity of California, Los Angeles, and Lamar Pierce, associate professor of organization and strategy at the Olin Business School at Washington University in St. Louis, Miss. eir research shows seemingly innocu- ous programs can still upset the status quo and negatively impact workers' perception of fairness, leading to reduced engagement and productivity. e study data e researchers studied data gathered from an industrial laundry plant in the United States that had recently implemented an attendance award program. In an eff ort to boost effi ciency and overall productivity, a manager instituted a program in which the names of all employees with perfect atten- dance (those who arrived to work on time, each day, with no unexcused absences) would be entered into a random draw at the end of the month for a $75 gift card. When the researchers reviewed the data from a 12-month pre-award period and a nine-month award period, the program had been successful in one sense: " e program did improve the attendance and punctual- ity of the workers who were not previously punctual," says Pierce. e program, though, had several un- intended consequences. First, workers responded to the very specifi c rules of the program and began gaming the system. "For example, the rules stated that em- ployees were on time if they were less than fi ve minutes late," says Pierce. "So, as the program was implemented, the data shows a spike in the number of people showing up four minutes late… We see them starting to call in sick more often the morning of work in order to avoid being late, as well." Researchers also found that when em- ployees lost eligibility — meaning they could no longer qualify for a "perfect" month of attendance because they had ar- rived late for just one shift — they reverted back to their previous poor attendance behaviour. Demotivated workers e biggest costs, though, were what hap- pened in terms of demotivating workers who previously were on time and always there, says Pierce. For those employees who had never had a problem in this area, their attendance actually got worse. " e thing about punctuality and good attendance is that you already have a num- ber of employees who provide that," he says. " ose are the employees who are intrinsi- cally or pro-socially motivated (driven by the intent to benefi t another) to be on time anyway." e intrinsically or pro-socially motivat- ed employees take pride in their attendance and view it as contributing something to the organization, says Pierce. " ey had good attendance before the program and they weren't being recognized for it, and now suddenly they saw manage- ment rewarding all the people who were not doing this before," he says. " ere was a sense of 'Hey, this isn't fair to us.'" Plant managers heard employees with good pre-program attendance expressing optimism about winning the monthly draw for the award, found the study. " ese were the people that usually came on time anyways, so were always in the hunt (to win)," said one manager. However, gift card winners tended to be from the high-tardy group of employees, found the researchers, which may have deepened feelings of unfairness among the more internally motivated workers: "Senior corporate management took our results as confi rmation of their belief that employees shouldn't be rewarded for things that they are expected to do anyways, as it creates fairness problems among workers." Productivity issues e awards program — or extrinsic motiva- tion — tended to "crowd out'" the intrinsic motivation in those employees who were internally motivated and who were already performing well. "Most importantly — and this is where the big ROI hit is — these people became less productive," says Gubler. Researchers measured workers' daily productivity in the factory during the program. " e ones who had been pro-socially and intrinsically motivated to be on time before the program was implemented had a drop in productivity once they saw their tardy co- workers being rewarded for the things they had already been doing." e researchers suggest these employees were unhappy because of concerns about a lack of fairness and equity. " at has a bot- tom-line cost for the company," says Gubler. In the case of the laundry company, workers with above-average pre-program attendance lost eight per cent effi ciency in daily laundry tasks after the program's introduction. Overall, the award program cost the plant 1.4 per cent of daily productivity. Positive potential of award programs Despite these findings, the researchers aren't suggesting employers discontinue award programs altogether. "Reward programs can work," says Pierce. " ey can be very eff ective and important tools to help organizations motivate em- ployees but, like any other important tool, they aren't costless. You still need to imple- ment them correctly." e main problem is that organizations underestimate the real cost. "You need to think carefully about how these programs are designed," he says. "In order to think about how eff ective a pro- gram is going to be, you need to think about all the diff erent costs." A key point is to avoid targeting and rewarding just the worst performers, says Gubler. " ese programs are similar to compen- sation," he says. " ey are a way to provide employees with a reward or benefi t simi- lar to monetary compensation and in de- signing them, you have to realize they'll be viewed that way by staff ." "Like any other important tool, they aren't costless. You need to implement them correctly." Free rewards SENSE > pg. 12 can be FEATURES Non-monetary award programs, done badly, could negatively impact an employer's bottom line: Study costly

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