A nice, hefty bonus in addition to your salary as a reward for working better, faster or more – sounds tempting, doesn’t it? Admittedly, such rewards systems can motivate employees to really go the extra mile. But these systems, intended to be performance boosters, also have their dark sides. Employees who receive performance-based compensation often begin thinking in “combat mode” and tend to be more aggressive towards their coworkers than those who receive a salary alone. These are the findings of researchers from Kühne Logistics University (KLU), Universität Hamburg and BI Norwegian Business School in Oslo, reached on the basis of a mix of experimental and survey studies.
“It’s just like playing a board game: the aggressiveness sparked by competition can either spark enthusiasm and make people try harder, or it can make them start playing a bit ‘dirty’ to ensure they win,” explains Niels Van Quaquebeke, Professor for Leadership and Organizational Behavior at KLU.
Commissions are bad for teams
This aggressiveness begins in employees’ minds, as the research shows: in one experiment, employees were presented with partial words and asked to fill in the missing letters. For example, win… could be made into winner or winter, while …ctory could be made into victory or factory. Those participants who received commissions chose winner and victory far more often than those who received none. Moreover, employees from various sectors were asked to assess their coworkers’ behavior: those with performance-based bonuses were more frequently considered to be impolite and aggressive. In this regard, the size of the bonus is irrelevant. In contrast, older employees who had been with the respective company for years were considered to be friendlier and more cooperative. “This may be due to a certain mellowness that comes with age. Conversely, young employees are more likely to engage in dog-eats-dog behavior, just as men are more likely to do than women,” says Van Quaquebeke. A last study shows that even if people rate themselves, one can see that performance-based rewards promote a competitive mindset amongst them, which ultimately leads them to show more interpersonal deviance – which is generally harmful for the working environment.
As Niels Van Quaquebeke underscores: “Because the destructive effects of these pay-for-performance systems outweigh their motivating effects, many companies have already discontinued individual bonuses. People often lose their intrinsic motivation in response to external incentives, and in the long run, bonuses motivate less and less, which means companies have to keep increasing them.”
What motivates employees in the long run
Accordingly, the researcher advocates rethinking individual bonus systems and relying more on team bonuses – even if doing so runs some risk of teams working against each other in silos. Company-wide bonuses, which can be seen as a form of profit sharing and therefore a symbol of fairness, are an even better choice. However, he argues, it is much more important to rethink our view of human nature. “People can’t be motivated by dangling the proverbial carrot in front of their noses; they’re looking for meaning in their work and want to accomplish things together. Accordingly, managers’ job isn’t to create monitoring and rewards systems, but to lead. They should offer employees a sense of belonging, autonomy and validation – psychological needs that we all share.”
In addition, over the last years we have seen a drastic shift from an employer’s market to an employee’s market. According to Van Quaquebeke, this means: “For decades, those in charge of companies assumed that people could be pressed into systems and led mechanistically. Now employers also have to consider employees’ needs beyond pay, since the motivators are largely psychological in nature.” Needless to say, compensation is still an important working condition – but clearly defined salary ranges and guidelines for promotion are better suited than performance-based bonuses.
Original publication:Daniel Gläser, Suzanne van Gils & Niels Van Quaquebeke (2022) With or against others? Pay-for-Performance activates aggressive aspects of competitiveness, European Journal of Work and Organizational Psychology, 31:5, 698-712, DOI: 10.1080/1359432X.2022.2039125