Performance related pay is widely used across the world in all types of professions. It is an economic process which holds the supposition that monetary rewards will increase productivity and performance. One key example of this is the use of commission-based pay as an incentive for sales staff.

But what would you say if I told you that higher monetary reward doesn’t always equal greater performance?

The effect monetary rewards has on performance

In 2005, The Federal Reserve Bank published a paper titled ‘Large Stakes and Big Mistakes’; which featured a set of experiments testing the effect monetary rewards had on performance. In one experiment, participants were set a series of tasks and each task was randomly assigned a monetary reward of low, medium or high.

Interestingly, performance levels in tasks which were assigned low to medium monetary rewards were the same; despite the significant financial differences.  More astonishingly, tasks that were assigned the highest monetary value, showed the lowest levels in performance. These findings not only help disprove the correlation between high monetary reward and high performance; the findings in fact indicate it may even have a detrimental impact.

The Implications

Although it is easy to presume money is a strong reason for us to get up every day and go to work; in truth it only goes so far. If we were all paid enough so money wasn’t an issue, humanistic incentives such as happiness, recognition, and self direction become much stronger motivators.

A good example of a humanistic approach to employee incentive is Avinity’s new ‘121Hours’ platform. 121Hours addresses employees as a whole person, encouraging sharing, sustainability, and positive wellbeing. 121Hours also drives innovation and peer to peer recognition, resulting in a happier unified work force. By adopting this holistic approach to employee rewards we can work together to achieve better performance and contribute towards a better world.

References:
The Federal Reserve Bank of Boston: Large Stakes and Big Mistakes 
Humanistic Theories of Motivation

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