Frederick Hertzberg famously stated that just because too little money can irritate and demotivate, it does not mean that much more money will result in satisfaction and increased motivation.
Economists however disagree with the findings of these experiments. They postulate that the salient function of incentives should be to increase the productivity of the activity. The research does show that one should not introduce an incentive scheme and then change it or discontinue it. The initial plan design must be an adroit and well-designed plan which will stand the test of time and motivate employees to perform individually and collectively, to achieve the strategy of the company.
Hockenbury and Hockenbury state that “Incentive theories proposed that behavior is motivated by the “pull” of external goals, such as rewards, money, or recognition.”
Lazear in his article “Performance pay and productivity” examined the impact of a change from fixed salaries to piece-rate compensation in an auto-glass factory. Productivity soared and output per worker was increased by 44%.
We contend that an appropriately designed scheme will support and reinforce a high-performance culture and encourage ethical behavior consistent with the company’s values. However, the risk-reward must be balanced where the scheme is structured in such a manner that it incentivises the employee to promote sustainable long-term growth, without encouraging excessive risk taking or a short-term parochial focus.
The scheme should be designed with a view of encouraging recognition and strengthening the psychological engagement with employees, while at the same time, providing top talent with an extrinsic monetary reward for their hard work and dedication.
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