Article: Do incentive pay models breed positive employee attitude?

Employee Engagement

Do incentive pay models breed positive employee attitude?

Contingent pay has an impact on employee satisfaction, commitment and trust in management. A research, 'Does contingent pay encourage positive employee attitudes and intensify work?' establishes the correlation between the two
Do incentive pay models breed positive employee attitude?

 “Keep your employees happy and business will follow.” ...  

These, and many other similar sounding words of wisdom have been iterated and reiterated in businesses for a long time - stressing upon the importance of employee happiness to drive companies forward. The concept of happiness and satisfaction, when understood from the Maslow’s Hierarchy of Needs Model, establishes that there are bracketed needs of human beings (in this case - employees specifically), and the needs at the top level are very strongly desired once after the basic needs are achieved. 

You will strongly desire self-actualization and self-transcendence after you have satisfied physiological, safety, love and belonging, and esteem needs."
         -    Abraham Maslow’s Hierarchy of Needs Model

Many recent researches and experts have both pointed out and opined that people at work seek self-actualization. It is the deficiency in self-actualization and transcendence that leads them astray from the purpose of the organization and they lose the connect. For instance, Liz Ryan, a celebrated commentator on human resources, shares her observations from observing and writing about the Human Workplace for nearly two decades. Ryan says that the top five factors contributing to employee unhappiness and dissatisfaction at work are: Recognition, Visibility, Latitude, Unaddressed Conflict, Feedback Loop.

While actualization needs are important, it is important for organizations to ensure the basic needs (physiological and safety) are also met. Abraham Maslow may not have been completely correct when he highlighted the path to self-actualization as hierarchical, but nevertheless, fair compensation is an important component in satisfying one’s needs.

 A recent research “Does contingent pay encourage positive employee attitudes and intensify work?” by Chidiebere Ogbonnaya, Kevin Daniels, and Karina Nielsen tests just that. It checks the correlation between three dimensions of contingent or incentive pay (performance-related pay, profit-related pay and employee share-ownership) and positive employee attitudes (job satisfaction, employee commitment and trust in management). 

In this article, we assess the relation between incentive pay and employee attitude using the key findings of the research.

Relationship between employee mood and incentive type

Incentive payouts can often reflect traces of subjectivity. Hence, they can be counterintuitive and infact belittle employee morale and motivation if treated unfairly. The research tests the hypothesis that, “(a) performance-related pay, (b) profit-related pay and (c) employee share-ownership are positively related to employees’ job satisfaction, commitment and trust in management, respectively.”

The study, which is arguably the first empirical research on the subject, found out that individual based incentives may not always have positive effects on employee attitudes - contrary to popular belief. The research cites high work intensification as the reason behind it. 

Below is a detailed correlation between the type of incentive and its impact on different employee moods.

Incentive type: Individual-based incentive

Effect on employee mood: Positive relationship with job satisfaction, employee commitment and trust in management

Explanation: Performance-related pay is independent of the external economic scenario or the internal business environment. It is strictly based on how an individual performs, and is independent of extraneous factors. So employees are “confident about receiving extra pay whether or not the organisation is adversely affected by economic uncertainties,” says the research.

Incentive type: Profit-related pay

Effect on employee mood: No direct correlation with job satisfaction. Negative relation with employee commitment and trust in management

Explanation: There is a downward relationship with all positive employee attitudes, but at higher profit-related pay, there was a positive relationship with employee attitudes, namely job satisfaction, employee commitment and trust in management. The research also notes that “employees are more likely to cede their personal interests in favour of organisational objectives if workplace resources are distributed fairly across organisational levels.”

Employers need to encourage fairness and adequate employee uptake of profit-sharing arrangements. Employers should ensure that mechanisms for distributing organisational profits are administered efficiently so as not to miss providing salient rewards to deserving employees in a timely manner.”

“Does contingent pay encourage positive employee attitudes and intensify work”

Incentive type: Employee Share-Ownership 

Effect on employee mood: Direct negative relationship with job satisfaction. No significant relationship with employee commitment and trust in management

Explanation: There is not enough evidence to draw conclusions within the scope of the research, but the researches have assumed fluctuations in stock prices to be one of the reasons behind a negative relation.

Of the three, performance-related pay has been found out to be the only type of contingent pay that makes employees feel their work is too demanding and the time needed to get work done is insufficient. Work intensification can be counter-intuitive to the feelings of job-satisfaction, trust in management and commitment in employees. It may also lead to employees feeling underappreciated and undervalued which may cascade to a poor attitude towards work. The research sums up that individual incentives may end up being counterproductive if there is “imbalance between intensive work effort and the availability of commensurate rewards.”

To sum up

The research fails to draw any significant conclusion, but what it uniquely highlights that there is no positive correlation between company-wide incentives and employee attitudes. And for individual incentives, it is necessary to avoid work intensification if employees are to feel satisfied and committed to their jobs, and trust the management.

This research also makes it clear that compensation, in isolation can not ensure positive employee attitudes. The reason no direct relation has been established is because there are multiple variables at play. People have different types of needs, if we go back to Maslow’s work. That too, are non-linear, and can not always be arranged hierarchically. So employers, to drive a positive attitude in employees, need to collectively address all the types of needs.

The reality is that human needs can’t be neatly arranged into a pyramid. Motivation isn’t simple, and it’s certainly not linear,” writes Susan David in her article, “Make sure your employees’ emotional needs are met” on Harvard Business Review. 

Maybe the future of employee satisfaction lies in moving towards individualization. Classifying employees in clusters and creating employee happiness strategies tend to favor the majority, making the others outliers. There is technology in the universe which can promote individualization (HR can look beyond its shoulder to marketing), and that can be used to keep employees happy at work - addressing all of their physiological, safety, love and belonging, esteem, self actualization and transcendence needs. 


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Topics: Employee Engagement, Compensation & Benefits

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